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Prison 'estimates' 20 months after construction

Simon Power MP
National Party Law & Order Spokesman

10 August 2006

Prison cost ‘estimates’ only available 20 months after construction began

National's Law & Order spokesman Simon Power is staggered that the indicative cost for Spring Hill Prison was not known until June 21 this year, 20 months after earthworks began.

Similarly, the indicative cost for Otago Prison was only known on May 25, 17 months after physical work began in January 2005.

These and further damaging revelations are contained in the State Services Commission’s report on the blowout in prison construction costs, released yesterday.

“Unlike a traditional contract, the prisons were built without a fixed price from the beginning, under the unusual Collaborative Working Arrangements (CWAs) adopted by the Department,” says Mr Power.

“The report says that an estimate of costs (known as Target Outturn Costs) should have been calculated before construction began – any delay means contractors are paid based on their actual costs, without any assurance that they are reasonable.

"Not only was the project steering group not being told what the agreed costs were until the last few months, but Cabinet was also in the dark.

"The Corrections Department and the Minister kept asking Cabinet for more money, but Mr O’Connor’s colleagues were apparently unaware that the estimates they were being given weren't even based on agreed costs.

"Labour's spin has been that the blowout has been limited to $140 million for two prisons.

"But the report actually shows that Cabinet was given a series of increasing estimates dating back to 2000, starting at $114 million for Spring Hill and $79 million for Otago.

By December last year they had approved $380 million and $218 million in funding for Spring Hill and Otago respectively, but even this was based on 'draft TOCs' that were clearly not finalised until recently.

"New Zealanders deserve to know why such huge fiscal decisions were made on the basis of such shoddy information.

"But this may not be the end. The report also says that under the CWA system, 'The actual costs are not known until the project is completed’, and those CWA Agreements are still 'being finalised'.

"The bottom line is the Government still can't say how much these prisons will cost.”


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