05/08/2010 - 00:00

Overruns a sign of poor management

05/08/2010 - 00:00

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Cost blow-outs take the shine off some worthy public projects, and undermine the validity of others.

AS a committed federalist and thus Western Australian loyalist, it hurts to highlight state government incompetence, especially when it’s protracted and occurs on a grand scale.

Consider the following.

On page 5 of the June 2010 auditor general’s report, ‘The Fiona Stanley Hospital Project’, we read:

• “The estimated capital costs of the Fiona Stanley Hospital stand at $1.76 billion compared with an original estimate of $420 million, and the opening date is between three and a half and four years later than originally planned.

• “As building costs have increased, escalation, contingency and professional fees have increased proportionally.” (page 15)

These points mean that lots of well-paid individuals made even more money from the cost blow-out – by greater than a factor of four ($420 million to a whopping, so far, $1.76 billion).

That meant taxpayers’ money for jam.

That’s a scandal, one Premier Colin Barnett and opposition leader Eric Ripper should immediately move to rectify, and then retrieve all or most of the contingency and professional fees outlaid.

Both should get cracking to fix this with Attorney-General Christian Porter, and Labor counterpart John Quigley, immediately amending current professional fee contracts to break any nexus between final public project costs and remuneration for those devising them.

Inserting penalty clauses rather than rewarding huge miscalculations – whether deliberate or accidental – would be preferable.

There should be no more blame-game responses. Both sides of politics should begin exercising their duty of care obligations.

Why did State Scene bother reading the damning auditor general’s report?

Because a senior government source said if I wished to have a sneak preview of what may occur with the Barnett government’s plans to dig-up the Swan River foreshore at William Street’s southern end, the so-called Perth Waterfront Project, it was worthwhile reading.

What that reading quickly showed was that federal Labor’s disbanded ‘kitchen cabinet’ of Kevin Rudd, Julia Gillard, Wayne Swan and Lindsay Tanner, isn’t Robinson Crusoe.

Far from it.

Some very senior ministers in the past two state Labor cabinets, sadly, share much with the Rudd-Gillard team vis-a-vis planning and management of public programs.

Another reason for identifying Labor here is that Alan Carpenter was ardently committed to a version of the Perth Waterfront Project.

So much so that, according to one Labor insider, if he’d been re-elected he would have put the Northbridge Link on the backburner until after the waterfront project was well under way.

Nor has the Barnett government been slow in following; its leader is gung-ho for development of the riverside precinct.

What is it about those trees and that lovely expanse of lawn alongside The Esplanade that makes politicians so determined to dig them up and build a phoney cove surrounded by ever more high-rise structures?

Doesn’t Perth’s CBD have enough concrete, glass and paving?

Unfortunately, state government performances in building infrastructure make it exceedingly difficult for those who prefer decentralised – federalist – governance to defend, especially in an era when Canberra is moving from big to super governance.

It’s easy to criticise the Rudd-Gillard duo, since it had so little to show that worked in accordance with stated intentions.

To emphasise the point on Fiona Stanley Hospital’s overruns, imagine if you and, say, your spouse decided to build a house, and budgeted to spend $150,000.

And after a year or so, one partner told the other their new house was at long last completed and, by the way, its total cost was not $150,000, but $700,000.

What would the other partner say? What would the financial intermediaries from whom you borrowed some, if not all, of the money, have said?

A fair guess is that you’d face being declared bankrupt, followed by prompt divorce proceedings.

Not so, however, when mug WA taxpayers are involuntarily involved.

Estimates are made and these then promptly escalate and further escalate and completion dates are invariably pushed out by several years.

But no-one at the top ever seems to worry, since WA’s mug taxpayers will always, in the final analysis, pay up.

So our leaders simply load the extra – $1.3 billion extra in the Fiona Stanley Hospital’s case – upon the people’s treasury.

Let’s also not forget that the hospital case isn’t a one-off.

Here’s a few lines from page 5 of the auditor general’s report titled, ‘The Planning and Management of Perth Arena’; that monstrosity now being erected at the Mitchell Freeway end of Wellington Street.

• “Perth Arena is substantially over budget and late. On current [March 2010] estimates, it will cost [at least] $483 million, more than three times the original estimate of $160 million.

• “The arena is scheduled to open almost three years later than originally planned, in November 2011 rather than January 2009.

• “Key decisions on the project during the contract negotiations have altered the planned allocation of risks between the state and contractors, increased the risks to the state, and led to project delays and cost increase.”

Not only does Perth Arena look like something out of Disney World, but costs have also blown out thanks to its hideous design.

The slowly rising arena will remind those who have visited Disney World, as State Scene has, of its Epcot Centre.

What’s fine for Disney World looks rather odd in a CBD precinct.

The extracts from the Perth Arena report are, unfortunately, just a taste of worse to come.

Those overseeing Perth Arena’s planning and management couldn’t even get smaller details correct, with the Department of Housing and Works being off target on two such items.

• “Department of Housing and Works accepted a price that contained significant uncertainties. It included provisional sums such as $20 million for the car park, and assumed that ‘design engineering’ savings of $34 million would be made.

• “Relying on these assumptions to achieve the contracted price was optimistic and high risk.

• “At the end of December 2009 the car park has cost $54 million, and only $2 million in savings have been achieved.” (page 6)

Why the constant errors, which taxpayers must shoulder at costly interest rates or from current or future revenues?

Lines like those in auditor general’s reports make one shudder whenever there’s press coverage about pressures on government to move and build more public facilities.

State Scene dreads the day when the go-ahead is given for a football arena, as if the costly and relatively recently built one in Subiaco won’t do the job for another 50 or so years.

I spoke to several sources and one explanation offered was that if the politicians and their planners who get fixated on ensuring particular projects are undertaken, like say Perth Arena or Perth Waterfront, they cannot alert the public to what these will ultimately cost since an outcry could block commencement.

It helps to first predict a low price, like $420 million for a hospital.

If the public was told it would be nearly $2 billion, the plan may not have received the green light and instead been cancelled or delayed.

Truth is stranger than fiction. But that’s how we’re governed.

Next week State Scene considers the Perth Waterfront Project, whose opening bid is “in the order of $2.6 billion”.

 

STANDING BY BUSINESS. TRUSTED BY BUSINESS.

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