Project costs ‘guesstimated’
The initial cost estimates done on a major Wellington infrastructure project – sold to ratepayers with a $30 million price tag only to later double in cost – were akin to a best guess.
A report that will be tabled at a Wellington City Council meeting today points to a ‘‘flawed’’ process for estimating the cost of big infrastructure projects, which one academic says is more like a ‘‘guesstimate’’.
The report, by utilities company Wellington Water, was prepared after the price tag for the Oma¯ roro Reservoir, planned for Prince of Wales Park in the suburb of Mt Cook, jumped from the $29.5m price quoted in 2017 to $58.2m in the city council’s recently released draft Annual Plan.
It is the latest in a string of cost blowouts that have plagued the council’s infrastructure programme recently. Wellington’s Town Hall project rocketed in cost from $43m to a reported $130m, while costs to strengthen and upgrade the St James Theatre have also doubled.
Blowouts on two other water projects were so great they had to be dropped from this year’s annual plan. All the price increases have largely been blamed on a tide of rising construction costs nationwide.
The Oma¯ roro Reservoir project received councillor approval two years ago. At the time, a contingency and allowance for inflated construction costs had been built into the $29.5m quote.
A year later, the price had risen to $40.9m and it was put into the council’s 10-year plan with budgeting calculations for the city’s future made around it.
This month it was announced that the cost of the project had blown out by a further $17.3m.
Mayor Justin Lester refused to comment on the issue yesterday.
But Professor John Tookey, head of Auckland University of Technology’s Built Environment department, said these sort of calculations, while common within the building industry, should be seen as ‘‘guesstimates’’ rather than estimates. ‘‘Estimates by their very nature are quite detailed. What these are; they’re not so much estimates, they’re more guesstimates – finger-in-theair type of stuff.’’
Tookey said these ‘‘rates-based guesstimates’’ needed a significant buffer built in if they were going to be used for long-term planning purposes.
Something akin to unit rates were used on the first cost estimates for the Oma¯ roro Reservoir.
The technique involves picking a price per square metre then multiplying it by the area of land used.
But this rate did not account for many of the project’s specifics, such as Wellington’s narrow streets, its seismic stress, and the difficulties of building a reservoir in a dense neighbourhood.
The use of similar estimates had caused major problems for firms such as Fletcher Construction on the Christchurch Town Hall and International Convention Centre project in Auckland, where a small buffer and rising costs tanked margins, Tookey said.
That explanation was echoed by utilities company Wellington Water in its report, which attributed most of the Oma¯ roro Reservoir cost blowout to rising construction costs, and $2.3m to the inaccuracy of estimates.
Councillor Iona Pannett said news of the blowout was ‘‘not great’’ but lessons would be learned from it.
‘‘We’re coming across this issue quite a lot now so we’re obviously going to need to take this into account as we go forward with all these large infrastructure projects.’’