9 August, 2006

Ministers welcome SSC report

The Minister of State Services Annette King and Minister of Corrections Damien O'Connor today welcomed the release of the State Service Commissioner's review of cost escalations in the Regional Prisons Development Project.

The ministers said the review report provides extensive and constructive analysis of the factors contributing to the $140.8 million increase in the Otago and Springhill prison building costs when compared to the estimates presented as part of the 2005 Budget.

The factors that the review found to contribute to the cost escalation include:

- Market factors, including the increased costs of materials, such as steel, and labour, as well as the need to pay increased allowance to attract people to work at such remote sites.

- Changes to design and construction following the completion of consent processes and regulatory changes; and

- Design changes to accommodate the predicted increase in prison population and additional work on a range of infrastructure services.

The ministers said the report makes it clear the government was not kept fully informed about the indicative nature of the estimations presented during the 2005 Budget process.

"The review found the nature and level of the departmental reporting to ministers at this time was inadequate and did not sufficiently signal the fiscal risks to the Crown."

Mr O'Connor said the large size and complexity of the prison buildings project, which was equivalent to building four small self-contained towns, had required very tight project management.

"The review found that in the initial stages of the project there was a lack of clarity around the project governance arrangements and the role of the project steering group. The focus on completing the prisons to a set timeframe compressed the amount of time available for the steering group to consider issues.

However, the review finds that these, and other, project management deficiencies have been largely addressed by the Department following its own review in late 2005," Mr O'Connor said. These changes have resulted in improved governance and project management arrangements.

"Importantly, the review gives credit to the department for achieving the overall outcome of the project, which was to deliver, or soon deliver, four regional prisons that can accommodate the forecast growth in the prison population."

The review also examines the specific form of procurement for this contract, called a Collaborative Working Arrangement (CWA).

"This contracting style allows a more flexible, open and faster building process which enabled the Department of Corrections to deliver the number of prisons needed to meet the growth in the prison populations," Mrs King said.

"However, the CWA method needs very careful and specialised management. The review makes a number of recommendations for agencies considering CWA methodology in the future."

The ministers said the review's detailed and technical recommendations provide good guidance to both the Department of Corrections and other government agencies that manage very large projects.

"The government reinforces the need for agencies to follow such good practice as ministers do not like to be surprised by cost escalations of this nature.

"We have been assured by the Department that it has already taken action to address the specific concerns around their performance in this area and that further steps will be considered now that the review has been completed."

The full report and the terms of reference can be found at www.ssc.govt.nz

ENDS

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