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Doubts over prisons contracting method

Simon Power
National Party Law & Order Spokesman

17 October 2006

Doubts over prisons contracting method

A report to Treasury shows there was great unease at the use of an untested contracting methodology to build New Zealand's four newest prisons, says National's Law & Order spokesman, Simon Power.

"That methodology has resulted in the prisons construction budget blowing out by more than $490 million."

Mr Power is releasing the report which shows that as far back as March 2004 there was unease at the Corrections Department's decision to use the Collaborative Working Arrangement (CWA) methodology to build the prisons.

The report says it cannot find any clear rationale for adopting CWAs, which were a 'significant departure from the previously agreed and well-tested methodology', were 'untested in New Zealand', and which had 'limited contestability'. The report also questioned why the decision to use CWAs was made within the department and not by the Minister, and whether it should be rolled out to the whole project without first doing a review of its effectiveness at Ngawha prison.

"Corrections' decision to use CWAs clearly worried the authors of this report, which backs up a State Services Commission report also expressing concern at using a methodology of which they had 'very little knowledge and understanding'," Mr Power says.

"CWAs do not require a fixed price up front, but simply an indicative cost, including a 'painshare/gainshare' mechanism that means taxpayers carry the can if costs blow out. And they have - to the tune of $490 million.

"The Minister's continuing defence of CWAs is also shot to pieces by revelations that even before the CWA for Spring Hill prison could be signed off, the cost estimates were already $9 million over budget, prompting a Treasury official to write: 'I can't see how Corrections can enter into a contract that knowingly exceeds the amount Cabinet has specifically allocated for Spring Hill'.

"It is clear from this that there was no control by Cabinet over what was being spent under the CWA, and there was certainly no interest shown by the Prime Minister's Office.

"Damien O'Connor has confirmed in a letter to me that he has not been in communication with the Prime Minister's Office over the project since the budget blowout was revealed.

"I find it simply astounding that the Prime Minister's Office took no interest, or that the Minister decided she did not need to know about this massive budget blowout."


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