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Middlemore project process 'complete disgrace' - manager

7:36 am today
Phil Pennington, Reporter

Multiple rules were broken to get a new lecture theatre built, an investigation into Counties Manukau District Health Board (DHB) has found.

Photo: RNZ / Claire Eastham-Farrelly

Newly released documents under the Official Information Act also show millions of dollars of spending were hidden to keep the lecture theatre and associated meeting rooms under a spending cap.

Read the full OIA release here

The regional internal audit was prompted after alarm bells went off at the newly elected Counties Manukau DHB early last year, about its Ko Awatea Two building which was under construction.

Auditor Ramon Manzano said parts of the approach to the build were fair and transparent, but others were deficient.

"There were six major Ko Awatea decisions, of which four were not approved by the board," the board was told in July 2017.

Instead, "the Ko Awatea Steering Group were the sole approvers of significant procurement decisions for the project".

The Steering Group's shortcomings:

• It exceeded its authority by awarding the contract and giving the go-ahead to begin construction in March 2017, when a contract wasn't signed till June 2017.

• Four of its six members did not fill out conflict of interest forms, though the DHB required them: "This [omission] could lead to additional costs for the DHB if the procurement process is scrapped due to probity issues," the audit said.

• The group had no terms of reference: "Without a TOR it is not possible to give assurance that the selection, appointment and responsibilities executed by the Steering Group members were appropriate".

• Two out of the four building companies interested got to tender, though they failed to meet the preconditions.

Various managers pushed back, saying the tender was run with some flexibility along normal commercial lines. But the auditor countered that the probity requirements were mandatory, not mere suggestions.

One member of the group was veteran DHB deputy chief executive Ron Pearson, a member of the Public Sector Advisory Board of the Institute of Chartered Accountants, who resigned from the DHB last year.

RNZ has been unable to contact Mr Pearson for comment.

The board had approved the original business case for Ko Awatea Two in late 2015, which fit with its strategy of trying to stem runaway demand on its wards and operating theatres by improving community healthcare. This business case was subsequently changed without its approval.

Ko Awatea One had opened in 2011, offering an "innovation hub" of meeting rooms and AV services, but no medical services.

Any DHB capital works over $10 million require regional and central government sign-off.

The construction contract for Ko Awatea Two was signed by the board with Leighs Construction on 21 June 2017, for $8.5 million.

Just a week later, the acting chief executive Gloria Johnson told the Health Ministry that new detailed analysis showed Ko Awatea Two would actually cost $11.96 million.

"The additional costs...could reasonably have been foreseen at the time of the initial Board approval, and certainly should have been apparent to the Steering Group in the course of the procurement process and project implementation," she wrote.

Her letter shows the "additional costs" left out, to get under the $10 million cap, included $1.52 million for consent fees and consultants, and $644,000 for the theatre's carpark.

"It is very disappointing to learn Counties Manukau DHB has significantly breached the rules around [the ministry's] Capital Investment Committee approvals," the Health Ministry's director of critical projects Michael Hundleby wrote back to Dr Johnson.

"This is especially troubling for a DHB assessed as having an 'A' rating under Treasury's Investor Confidence Rating framework."

Ko Awatea Two was not run by the DHB's own facilities unit, but by an outside procurement expert.

The audit was told that deputy chief executive Ron Pearson was in conflict over the project with the facilities manager at that time, Greg Simpson.

"I was completely isolated from this process which made me very, very angry," Mr Simpson told RNZ in an email.

"For some time we were absolutely ignored until issues arose and Pearson asked me to overview. I refused and advised the responsibility was directly with him and the CEO. This project should never have proceeded for many reasons.

"The consultant Jadnax also must have been instructed to not work with my office. The process, or lack of it, was a complete disgrace and totally unprofessional in my view."

Geraint Martin, the chief executive for a decade until 2017, told RNZ last week that he was "confident that all appropriate funding approvals were received for both the Ko Awatea One and Two building projects".

"KA2 is the replacement tiered lecture theatre that clinicians, especially orthopaedic surgeons, see as a vital facility for teaching," he said in a statement, adding he wouldn't comment further.

The Health Ministry is still investigating the DHB's financial management.

Counties Manukau has lurched from an expected $4.5 million surplus to a $12.9 million deficit, and faces huge deferred capital costs to replace or repair multiple leaking and quake-prone buildings.

The funding of Ko Awatea Two has also been faulted for not getting board or central government sign-off.

Middlemore sold 29 pieces of clinical equipment, mainly sterilisers, to finance company MCL Capital in January 2017 for $9.98 million. It has to lease them back over a four-year term for a total of $10.4 million, breaching the cap.

Leasing hospital equipment is not unusual.

But the sale and lease-back of items like this, which would inevitably be needed when the four years was up, was unusual, according to Dr Johnson.

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