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Monday
Aug152016

Further Shemozzle Over The Indoor Courts

Following my having observed the failure to commence the planned dismantling of the present buildings on the site of the new Zoom Zone Indoor Courts, I got around to reading the agenda for Wednesday's Council meeting, and there lay the explanation.

It is clear that staff got cold feet about proceeding without the back-up of sufficient contingency on the construction contract of $4.552m - it is only $78k as it stands because of the fiddling that accompanied the final submission to Council for approval for the project.

The only way they were able to approve the contract within the approved budget was by changing the ownership arrangements so as to ensure that Council would not be required to provide for depreciation. It managed this by deciding that ownership would transfer elsewhere - presumably the school in 2035.

Council in its wisdom decided that it therefore would have no need to replace/upgrade the building at the end of its theoretical 20 year year life - so ipso facto, no need for depreciation other than for renewals (maintenance).

In addition, it decided to award the contract with a contingency of 2.36% - rather less than the normal 10%.

But having earlier decided to guarantee the Thames business pledges of $490,000 on which the  contract depended, there was obviously some 'second-guessing' going on behind the scenes - hence the need to return to Council on Wednesday to get approval for the full 10%, or additional $331k to be provided from from the Thames Depreciation Reserve (note the financial anomaly here!)

This whole project has been a giant shemozzle from day one , culminating with the awarding of the contract to a construction company with a dubious financial record, and now making further provision for the almost certain over-runs that staff are clearly anticipating. The administrative and financial finangling that has characterised this entire project to date  appears ready to continue.

The Community Board needs to be held responsible for overseeing this state of affairs - Council has only been required to pick up the pieces and provide the 'back-stop' required - I can just imagine the 'back-room' comments between Fox & McLean on the matter, but their record at Whitianga does not bear close examination.

Unfortunately, it is unlikely that the incoming Board will be inclined to do anything about it - one can only wonder how this behaviour gets past the audit process, but that is nothing new, and 'par for the course.'

Here is the actual wording of the paper going to Council:

"On the 29 June 2016 staff provided an update to Council on the project with an approved project budget of $4,552,941 containing a contingency provision of $78,297. This contingency represented some 2.36% of the construction contract of $3,318,163. The following resolution was passed.

1. Receives the Thames Indoor Sports Facility report date 21 June 2016, Attachment A - Exception Report and Attachment B - Updated Business Case.

2. Approves the change to the proposed ownership of the facility, that TCDC retains ownership of the facility and establishes a management committee with stakeholder representation to provide advice on the management of the facility.

3. Accepts the construction of the facility is a capital cost and approves use of the Thames Local Depreciation Reserve to part fund the capital costs.

4. Does not fully fund the depreciation of the facility, funding only sufficient depreciation to meet known renewals requirements within the 35 year lease, currently estimated at $42,000 per annum.

5. Approves initiation of Milestone 6 (construction) subject to approval of the same from the Thames Community Board and that final pricing is within the 2016/17 project budget amount of $3,883,233.

6. Acknowledges that the remaining budget will leave less than the staff recommended contingency for the construction phase and that staff may request the Council to revisit the contingency budget at a later date.

7. Delegates authority to the Chief Executive to execute all legal documentation related to the Thames Indoor Sports Facility

(French/Bartley)

Discussion

Even with the best endeavours to deliver projects to best practice through appropriate investigation, research and analysis being undertaken a project will always be subject to elements of risk including assumptions and the unknown. Those risks often result in

additional financial cost. Contingency budgets are standard practice in covering that risk by providing a provisional fund should those risks become material.

With final costs now known it is evident that the total budget falls short of providing the recommended construction contingency of 10% / $331,814.

Under Council's Delegated Financial Policy to the Chief Executive there is no tolerance with over expenditure and unbudgeted expenditure on capital expenditure projects. If the recommended contingency was not made available staff would need to seek Council or emergency approval from two of - the Mayor Deputy Mayor or chair of the Audit Committee, prior to committing to any additional expense.

This will restrict the ability of staff and our contractors to respond in a timely manner as risks materialise into issues over the construction of the facility. As such it will inevitably lead to project delays

Therefore approving the recommended contingency budget up front is recommended to avoid those issues and delays during

the construction period. The contingency budget would be held in reserve to provide for time and cost variances, or risks relating to the project.

Project Quantity Surveyor, the Engineer to Contract and staff advocate a contingency fund for this project equal to 10% of the construction contract value of $3,318,136 which equates to $331,814 . This is a $253,517 increase to the existing contingency fund of $78,297contained in the paper to Council on the 29 June 2016"

 

 

 

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Reader Comments (3)

Bill - from your experience, do you know how new capital expense can be funded from a depreciation reserve? I thought depreciation reserves were to cover the replacement of existing assets only.

August 16, 2016 | Unregistered CommenterCautious

Beats me - another example of the 'sleight of hand' that we have seen demonstrated on countless occasions over the last few years. I simply do not believe it is appropriate where their no depreciation being allowed for on the asset - other than to cover maintenance.! The school (Education Department) has indicated that it does not want that responsibility - hence the Trust!
The AG has said that he/she is only interested in the 'big picture' stuff - this is one of those internal audit issue that should be immediately picked by the Audit Committee under Fox - but have have proved incapable in the past - all talk and no puff.

August 16, 2016 | Registered CommenterBill Barclay

Give me strength.
Another sporting venue debacle, same as the Whitianga sporting complex
All under Leach's watch, the current crop of councillors need to go.

August 16, 2016 | Unregistered CommenterPolitico

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