School projects costs blowout.
After almost 10 years of planning and preparation, a sunrise ceremony last June signalled a new beginning for three Marlborough schools. The start of a plan to shift two colleges, and an intermediate school in Blenheim which was one of the largest and most complex rebuild projects to be undertaken by the Ministry of Education.
But even as a karakia was being said to bless the building project that morning, the project was already in trouble: costs had risen from an estimated $63m to a staggering $405m.
Nine months after that sunrise ceremony and with $25m already spent on the design and planning, the whole project was cancelled.
One of the results from this debacle was to have a ministerial inquiry into school buildings projects where costs have spiraled out of control, which found that twenty were on hold, but the Government says there may be as many as 350 where expectations exceed affordability.
In another example of this common occurrence of cost spiraling out of control was told to me recently by a builder who had been engaged in repairs and maintenance on school buildings and the latest maintenance project that he was working on was originally costed at approximately $650,000 yet it had blown out to over $1.8 million and was still to be completed.
This blow out of the budget still left the school with what was effectively just a patched up set of buildings that should have been replaced due to their initial condition. If they had been replaced then the school could have had purpose built classrooms that were new and all within the current costs of the repairs. But no they end up with overpriced repairs and buildings that are still near to their end of life but with all problems hidden behind a shiny new coat of paint.
Public discussions about the project to shift the Blenheim schools was started in 2013 when it was stated that some of the existing buildings were crumbling, and needed major upgrades.
In 2015 the then education minister Hekia Parata confirmed that the decision to construct two single-sex schools on one new site costing $63 million had been made and that they would open in 2021.
Three years later and after a change of government the search for a new site was still underway without any end in sight. In addition to the problems around finding a new site the expected costs for this project had ballooned out to $103 million due in a large part to the fact that the original proposal had not included all of the important costings.
The new Labour government education minister Chris Hipkins at this time ordered a review of the project. As a result of that review, Minister Hipkins announced that the two new colleges would be built on the grounds of the Bohally intermediate school and that the intermediate would move across town and be rebuilt with space for up to 720 pupils.
Design work was set to start early in 2019 and even though education officials & Minister Hipkins knew that the project costs had further increased to $170 million, there was no public mention of this or any revised budget released.
The Ministry of Education revealed that in 2018 Cabinet had been advised of the cost increase, but was also told this would be funded within existing baselines, and Ministers agreed final approval would sit with Hipkins and the then finance minister Grant Robertson.
In 2020 with costs steadily increasing, officials contracted consultants Deloitte to review the business case, and they confirmed that the proposed costs were now $250 million. The Deloitte’s review cost the education department $356,763.
Officials needed to pay for the design work which required approval for a further cash injection to do so and in December 2020 they advised Hipkins of the blow-out. Even though Cabinet was not officially advised, the Finance minister Grant Robertson was advised of the position in relation to the budget blowout.
The ministry asked for nearly $18m but were given just over $6m and were also told to look for “more sustainable funding mechanisms”. It was noted that “viable options for alternative funding mechanisms were not able to be found”.
Treasury also recommended that the finance minister set a limit for capital investment in school property, or top up the National Education Growth Plan (a $1.2 billion fund for new classrooms). The ministry has no record of either decision being taken.
A few weeks after the May Budget a commercial construction company was selected to take charge of the project, although the ministry said it was too early to say how long the project would take to build, and that the final budget wouldn’t be determined until after the master planning and design phases.
The ministry also bought five homes, worth a combined $4m, on land that was needed for the schools.
By April last year, the colleges’ master plans were ready to show the community, and showed a combined floor area of more than 22,700m with 130 “teaching spaces” for 2,500 children.
Ministry documents show the design costs alone reached more than $17m. School and iwi costs were more than $3m, and relocating council hockey turf to the new site cost $4.5m.
There was a lot of consultation with the ministry and the other schools on the design ... and the design concept was accepted as very good but there was just no talk about budgets at that time, and even the chief executive of the commercial construction firm who stepped down in March, after 10 years, said that “there seemed to be no accountability for managing the budget”.
The design was “ambitious and reflected aspirations of the community”, the ministry’s head of property infrastructure and digital acknowledged but it was also unaffordable, and Hipkins was already aware of that.
In November 2022 the Government was advised that they were now looking at $405 million price tag and in comparison, the redevelopment of Christchurch’s Hospital — the largest and most complex building project in the history of the public health service — came in at $483m.
Given the size of the size of the cost increase, officials asked for further direction presenting a range of options, ranging from proceeding with the $400m+ build, scaling the project back, or abandoning the relocation in favour of upgrading the existing buildings, at a cost of $200m.
Hipkins didn’t put those options before Cabinet, instead he directed the ministry to proceed “under the current investment approach”, which meant getting smaller amounts approved each year through the Budget process.
The ministry managed to reduce the bill by $25m through scrapping the technology hub and building to accommodate 400 fewer students, although that review exercise itself cost the ministry $126,549.
“They reduced the physical size... and they came up with a second design concept, which everybody was pretty happy with, but when they were asked about the budget they never really gave an answer.”
With the 2023 Budget fast approaching, Hipkins could have taken the opportunity to put the entire project and its cost over-run before Cabinet, but opted not to, and instead directed his officials to continue with the approach of making Budget bids for incremental amounts.
Technically, this was within the rules as Cabinet approval is only required before the ministry enters into a contract that commits the Crown to spending and at this stage they had not entered into a contract. The ministry got an extra $36.6m for design works.
In early 2023 Hipkins had succeeded Ardern as prime minister and Jan Tinetti was appointed, as his replacement, to the Education portfolio.
When the National led-coalition was sworn into office last November, officials put the proposal on hold and in February 2024 the new Education Minister Erica Stanford flew to Blenheim to break the news to the schools that the relocation was scrapped and the ministry would instead fund upgrades to existing buildings. That took the cost back down to about $100m.
Stanford stated that the Marlborough schools blow-out prompted the subsequent inquiry into school property projects; saying “I remember sitting in a meeting thinking: ‘How did this get to $405m and no-one blinked?’ This was one of the first things that landed on her desk as the new Minister of Education.
There was really no oversight of this project, there was no accountability to stick to the budget.
“This was the perfect example of a project which could have been done through fantastic, repeatable designs, on a budget. And they chose not to do that. It was all architects and fancy designs and a bespoke building.”
Those working on the project outside of the Wellington bureaucracy always believed that if there was a change of government the project would probably be shelved or cut back significantly.
While building-cost inflation (which was at 17-20% during that three-year period) had an impact, it is believed that the increases in scope were more to blame as a number of stakeholder groups (such as the local council, the local iwi, PTA, the school community) had input and the scope kept going up and up.
Stanford said the ministry had used repeat designs in some schools, but not consistently and while school property is a priority for the Government it's our job to make sure that we use taxpayers money to get as many fit-for-purpose school classrooms as we can throughout the country and we do as much maintenance as we can, within the budget that we've got.
So we end up with $25m already spent on the design & planning for this Blenheim project, and the project cancelled due to budgeting cost over-runs. With a history of poor decision making such as this it was not surprising to me that Chris Hipkins failed to lead his Labour party back into power at the 2023 general election.
What does actually shock me is that his colleague in this poor financial decision making around the Blenheim schools project, (the ex-Finance Minister and Deputy Prime Minister, Grant Robertson) should end up being given the position of Vice Chancellor of the University of Otago with a salary of approximately $650,000 per annum after retiring from parliament.
Given that budget cost blowouts such as those discussed above, have been a reasonably regular occurrence under the Ministry of Education management, it is appropriate to ask, why?
In my opinion it has much to do with the lack of a connection to the real world, from both the MP’s and the bureaucrats in the government service. They also seem to be far removed from reality when it comes to providing a service to the taxpayer that is value for money and that is affordable. They do not seem to be able to understand that you don’t have to have the latest and greatest of all facilities to enable teaching of students.
In this project there was a lot of consultation on the design, and the design concept was accepted as very good but there was just no talk about budgets at that time. This lack of ensuring that the project was within budget at all times exposed the poor management performance in control of this project and ultimately led to the cancellation of the project at a cost to the taxpayers of $25 million.