A small storm in Queenstown over some sewerage pipes on a new bridge points to how little we know about the vastly expensive infrastructure we pay for, writes Peter Newport.
We are all guilty of not knowing the actual cost of things. The tax on petrol. What a plumber should charge to fix a dripping tap. The wholesale price of a fibre broadband connection.
But how about a kilometre of new road? Or a tunnel under the Waitemata Harbour? Or a sewer pipe across a river in Queenstown?
These big-ticket infrastructure items are always in the millions and often in the billions of dollars. Usually we see the number in the media and think “OK, that’s what it must cost”. But it’s our money that pays for these Big Projects and we should be very interested in whether fair value is being delivered.
Now a small-ish Queenstown project has set alarm bells ringing in places where such big red bells, and flashing warning lights, usually remain reliably silent and un-illuminated.
The Queenstown Lakes District Council has been asked to sign off $5.3 million for some sewer and water pipes that need to be added to a new $22 million bridge being built over the Kawarau River near the airport.
“Absurd”, was how one local development manager categorised the cost. He’s Brian Fitzpatrick, who reckons that an entire new pedestrian bridge over the river could be built by his employer, Remarkables Park, for much less and carry the pipes as well. The Council has said it can’t consider this proposal partly because of the time it would take to go through the Council’s own consenting process.
The $22 million, 250 metre long Kawarau Falls road bridge itself is about 20 years overdue, but that’s another story. The new two-lane bridge replaces the current single lane, traffic-light controlled bridge that is the only link between Invercargill and Queenstown – plus multiple new bustling suburbs to the south.
In fact what the existing road crosses is not even a bridge, but the crest of an ill-fated 1926 dam that was designed to drain the Kawarau River, exposing a supposed El Dorado of fat gold nuggets on the dry river bed. Needles to say that plan did not work out.
But is a new gold rush being lead by the NZTA contractors who want to charge millions to tack on a couple of Council pipes to the new bridge?
I contacted McConnell Dowell, the contractors who had reportedly produced the quote, to ask about the $5.3 million budget for the clip-on pipes. Interestingly McConnell Dowell sounds like a good solid, Kiwi company but is in fact now owned by Aveng Limited, a company quoted on the Johannesburg Stock Exchange. After all the usual niceties about confidentiality, McConnell Dowell’s Auckland office suggested I check with NZTA (the bridge client) and Queenstown Lakes District Council (the pipes client) if the numbers being quoted were in fact supplied by McConnell Dowell. The construction giant also pointed out that the number was a budget, not a quote. A quote would be produced once detailed design work was complete for the new water and sewer pipes.
Somewhat intrigued by this challenge I then asked NZTA and QLDC “Did the $5.3 million budget come from McConnell Dowell?”
Well it turns out that the answer is “No.” In fact the only thing that the various parties could agree on is that it was all “very complicated.”
QLDC told me that they had added some of their own costs, specifically consenting, internal staff costs, contingency allowances and additional engineering charges. How much the extras total exactly we don’t know, but Peter Hansby, the council’s General Manager of Infrastructure, was not shy about the overall history of the $5 million bridge pipes.
“The road bridge is being built earlier than planned by NZTA, because of increased road traffic,” he explained. “That meant that if we wanted to attach our new pipes to the bridge we would have to move earlier than expected as well.”
Peter Hansby then explained that the heavily engineered bridge embankment walls on each river bank would have been very expensive to dig into at a later date, so hurriedly clipping the pipes onto the bridge during construction was the only “cost effective” way to go.
However the time pressure put the council in a very weak bargaining position with both the NZTA and their contractor McConnell Dowell. The councillors at the recent meeting were told that in order to get the pipes attached to the new bridge the decision needed to be made “today.”
The price tag also includes the cost of connecting the pipes to the network on either side of the bridge. Hansby was also clear that the cost would be independently assessed by specialists once the contractor had produced a quote based on detailed design work.
So who pays? The ratepayers of Queenstown or the developers of all these new suburbs that need the water and produce the sewage? Or the new hotels full of the ever-increasing hordes of tourists? Peter Hansby says the developers do make a contribution but much of the eventual bill does end up with ratepayers. Not allowing for increasing council debt, cash reserves, GST or developer contributions etc., that could be the equivalent of $300 for each ratepayer if paid all at once.
This invariably calls to mind the the $53 million Mangawhai sewerage scheme which in 2012 produced a rate rise of around 40% and virtually bankrupted the Kaipara District Council.
Can New Zealand afford these infrastructure costs, even if they are fully audited, independently checked and fair value? Queenstown Lakes District Council’s Peter Hansby says it comes down to a stark choice of early investment with a risk that forecast demand won’t happen – or the “just in time” approach currently being used that can produce $5 million clip on bridge pipes.
I asked the Chairman of the Taxpayers’ Union, John Bishop, for his view. “There is cause for grave concern,” he told me. “There’s no evidence of systemic failure on the way big projects are priced, but we are largely at the mercy of the big construction companies and the councils. The only real protection we have at the moment is the expectation of transparency and emergence of whistle-blowers.”
Bishop points out that in the United States three big corporations – General Electric, Westinghouse and Allis-Chalmers – were famously indicted back in the 1960’s as part of what become known as the Great Price Conspiracy. But generally the policing of big public construction projects is complex and difficult to enforce.
John Bishop says the Taxpayers’ Union would like to see MBIE or the Commerce Commission set up a formal watchdog to keep a check on the cost of our new roads, bridges, pipes and tunnels. The Commerce Commission confirmed to me that they do have responsibility for policing price fixing or the formation of cartels, but not policing the fair value or costing of NZTA-type projects.
The Commerce Commission does however check on the cost of airport construction and also electricity infrastructure construction “where there is a monopoly involved.”
The scary thing is that these public works projects dwarf almost anything else we do as a country. Take Auckland’s new Waterview Tunnel for instance. The total cost is $1.4 billion – which is a measurable chunk of our Gross Domestic Product. Just a 1% mistake in the fair value of the Waterview project would equal $14 million – or almost three Queenstown bridge-sewer kits.
I asked Queenstown’s new mayor Jim Boult, who has a background which includes being a Director of Hawkins Group Construction as well as CEO of Christchurch Airport , what he thought of the $5 million pipes across the Kawarau River. “It does seem like a lot of money,” said Boult. “My concern is that the sewer pipe budget is being used to cover other expenses on the bridge – cost overruns – which are nothing to do with the council.”
Boult potentially has a point here, as the new bridge is now behind schedule due to unexpected engineering problems. McConnell Dowell project manager Jim Washbrooke told media in November that the challenges of the river bed and rock had not been fully understood prior to construction and they needed to “change tack a bit” pushing the completion date towards the end of this year. “We were perhaps a bit optimistic”, he said.
Jim Boult says the sewer pipe is just one example of infrastructure cost, fair or not, that Queenstown can’t afford from a small ratepayer base. “That’s why we need a resort tax. We need central Government to step in and make sure that we don’t sacrifice growth for infrastructure.”
Which raises a real Elephant In The Room question. Are we literally too small as a country, as an economy, to afford the bridges, tunnels, pipes and airports that will allow our economy to grow? And can we afford to make them all earthquake proof?
The day after I’d spoken to Mayor Jim Boult and the Council’s Peter Hansby about the $5 million pipes, NZTA’s Senior Project Manager Phil Dowsett got in touch to say that the pipes had always been designed into the new bridge for installation at a later date, but it was the Council that wanted to install them ahead of schedule because of Queenstown’s booming population. Mr Dowsett also stressed that NZTA would hire an independent audit company, Bond Construction Management, to check on the McConnell Dowell cost of adding the pipes to the bridge.
So in summary we have McConnell Dowell pointing the finger at either the NZTA or the Queenstown Lakes District Council for bumping up their budget, NZTA pointing to the council for installing the pipes early and the Council sayings it’s NZTA who decided to build the bridge early.
To put this all into a somewhat horrendous perspective, the new bridge is part of a bigger plan to ease traffic around Queenstown airport. A new bypass road, known as the Eastern Access Road, is now being built – also at a cost of $22 million. It’s around two kilometres long on flat land – about the same length as the airport runway. The road cost is over $10 million per kilometre. And it doesn’t even directly connect with the new bridge.
In addition, that $10 million per kilometre road cost does not include another $8.2 million for nearby intersection upgrade work , and $1.3 million for the nearby infamous BP roundabout to have its layout improved. And there’s a new $30 million Queenstown sewage station just down the road which should be officially open by the end of this month, after some initial teething problems.
The ultimate plan for the increasingly congested area around Queenstown airport involves a second new bridge across the Kawarau River and various extra roads to connect the new roads to the two new bridges. My desktop calculator starts to run out of zeroes when adding up the cost all of these new local roads, bridges and roundabouts. No wonder many locals are planning to leave town before the next rates bill arrives.
I suspect Mayor Jim Boult must have nightmares about Queenstown’s growth, seeing a terrifying pile of extremely large construction invoices rather than a golden age of enlightened expansion and touristic joy.
But this is all a mere drop in the ocean compared to the cost of the Auckland City Rail Link which is tracking towards over $1 billion per kilometre.
In November 2013 the NZ Institute of Economic Research reported to the Ministry of Transport on our rapidly escalating construction costs. These costs are rising much faster than inflation and are much higher than in Australia. In a nutshell the report said poor procurement and poor productivity were key factors. They also noted that there was a risk of price fixing and bid rigging in New Zealand, with insufficient measures in place to either spot or prevent these things happening.
A 250 metre sewer pipe across the Kawarau River might seem like a small deal, but the debate it has sparked speaks to how little information the public has with which to judge the quality of hugely expensive decisions made on its behalf.
We really do need to understand exactly what all this stuff should actually cost – and if we can afford it.
This content is funded entirely by Flick, the electricity retailer giving New Zealanders power over their power. With both spot price and fixed price plans available, you can be sure you’re getting true cost and real choice when you join Flick. Support us by making the switch today.