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Review of Cost Escalation in Regional Prisons

State Services Commission

Wednesday 29 March 2006

Review of Cost Escalation in Regional Prisons Development Project

The State Services Commissioner, Mark Prebble, today released the Terms of Reference for his review into the cost escalation of the Department of Correction's Regional Prisons Development Project.

The Cabinet has invited the State Services Commission in consultation with the Treasury to review the processes, systems and contracting practices on these projects to determine the cause of these cost escalations.

Mark Prebble has appointed Murray Coppersmith, partner at PricewaterhouseCoopers, to lead the review.

Murray Coppersmith has been with PricewaterhouseCoopers for over 24 years and has been a Partner for over 15 years. He has experience in financial investigations, advice to Government and the wider public sector, economic and regulatory advice, and business valuations.

"The review's terms of reference have been developed, and are publicly available on the SSC's website," Mark Prebble said.

Mr Coppersmith has been asked to report and make recommendations on:

· The key reasons for the cost escalations, identify the lessons that can be learned and recommend any systems and processes that are required to ensure that they are not repeated.

· The Department of Corrections' methodology and process used to design, cost, procure and schedule the projects and assess these against good practice, drawing on both public and private sector experience.

· What reporting to Ministers is appropriate for capital projects of this size, and how the reporting on these projects met these criteria.
The review team will begin work this week and are expected to deliver their report at the end of June 2006.

"In the meantime, neither I, Treasury nor Murray Coppersmith, will comment publicly on the review," Mark Prebble said.


Terms of Reference by the State Services Commissioner, in consultation with the Treasury

Introduction In 2000 Cabinet approved the construction of four new prison facilities. The first of these, the Northland Regional Corrections Facility (NRCF), which is excluded from this review, was opened in March 2005. Two of the remaining three facilities, Spring Hill Corrections Facility (SHCF) and the Otago Region Corrections Facility (ORCF), have experienced substantial cost escalation. This review examines why these escalations occurred and what can be learnt from this process.

Review Context The review recognises that the Department of Corrections' project staff are working concurrently to complete the Auckland Regional Women's Facility, progress construction at Otago and Spring Hill, and undertake audit and probity work as part of those projects.

In light of cost escalations the Cabinet Business Committee invited the State Services Commissioner, in consultation with the Treasury, to independently review the processes, systems and contracting practices at Spring Hill and Otago prisons, in order to learn lessons for future capital projects [CBC Min (05) 20/8].

Deliverable 1 To evaluate and report on the Department's end-to-end process of designing, costing, procuring, scheduling and project management of the new facilities, as outlined above, in order to determine appropriate practices and lessons that can be applied to future projects in the Department or any agency in the wider sector.

The report will:

1.1 Identify the key drivers and causes of the cost escalation;

1.2 Outline what lessons can be learned from, and about, the Department's methodology and process used to design, cost, procure and schedule (excluding commissioning) the SHCF and ORCF;

1.3 Assess the adequacy and quality of methodology and processes against good practice drawing on both public and private sectors;

1.4 Comment on the systems, processes and environmental factors to anticipate management or commercial cost drivers to inform contingency planning and identify lessons as appropriate;

1.5 Review what reporting to Ministers would be appropriate for a capital project of this size, what reporting occurred on these projects and what can be learned for future projects;

1.6 Reflect learning and application of reviews already undertaken for the Department including by the internal audit group, Deloittes, Audit NZ and any other reviews that bear relevance to the Terms of Reference;

1.7 Any other matters relevant to the review subject to the agreement of the State Services Commissioner.

In and Out of Scope - Range of Projects

In Scope Spring Hill Corrections Facility Otago Region Corrections Facility
Out of Scope Northland Correctional Facility South Auckland Women's Correctional Facility Other building projects such as muster management beds (2005) Commissioning of prisons Consent Process Regional Prison policy
Timing This review will be reported back to Ministers by 30 June 2006.


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