Prison contractors claim extra $430m in Covid costs

A private sector consortium developing the new Waikeria Prison has claimed an extra $430 million from the Government to cover pandemic-related costs after significant delay in the project’s completion.If accepted, the claim would take the cost of the 600-bed facility to $1.18 billion.A spokesperson for Morrison & Co, lead equity partner of the Cornerstone Infrastructure Partners project consortium, declined to give any further details of the costs behind the claim, the expected final project cost or the completion date.“We can confirm we’re working closely with the Department of Corrections to resolve the resourcing and cost rise issues caused by the Covid pandemic,” she said.“The lodging of a claim is normal practice in these situations and we hope to settle through resolution.“We cannot provide an end date, a cost breakdown or final price at this time, as we are discussing these with the Department.”The $430m claim received by the Department of Corrections in August was disclosed as a contractual dispute in the Government’s financial statement for the year to June.The report said the claim was for “compensation for time and productivity losses incurred due to the Covid-19 pandemic”.“At this stage it is not possible to reliably estimate the claim,” the statement said.Cornerstone won the $750m public private partnership (PPP) contract to design, build and maintain the new Waikeria prison in September 2018, with completion expected in early 2022.Corrections has said the prison is now expected to complete next year “due to the impact of Covid-19 on contractor and supplier availability”.Others in the consortium are CPB Contractors and its sister company Pacific Partnerships, Cushman & Wakefield and Honeywell.The new Waikeria facility near Te Awamutu is designed to accommodate 500 prisoners with a further 100 beds in a mental health and addiction treatment facility. It will replace existing 100-year-old facilities at the same location.In April 2021 Corrections Minister Kelvin Davis said construction was making “excellent progress” and the facility would be complete in August this year.Comment has been sought from Corrections.Loss-makingCPB, a unit of former ASX-listed CIMIC Group which operates as a New Zealand branch, reported a loss of $202.6m for the year to December 2021, following a loss of $103.8m the previous year.At balance date CPB, which owns 40% of the Cornerstone Infrastructure Partners Holding limited partnership, had net assets of just $3.4m and current net assets of negative $92.7m.CPB was also the main construction contractor for the Transmission Gully roading project, another PPP, which was subject to numerous delays and cost overruns.Transmission Gully compensationIn December 2020 the Government agreed to pay the PPP consortium – known as Wellington Gateway Partnership – compensation of $164.2m to cover the costs of delay from Covid-related shutdown, plus an extra $45.5m in contract variations. The terms required completion of the road by September 27, 2021.The settlement followed a previous deal in February with the same partnership in which the Government agreed to pay it an extra $190.6m in “financial relief” to cover unexpected complications in the project delivery.The road finally opened on March 31 this year.Transmission Gully under construction.Other CPB projects include Christchurch Hospital’s Waipapa building, which was delivered two years late, a new in-patient building at Dunedin Hospital and the Te Pae Christchurch Convention Centre.In August last year another CIMIC subsidiary UGL won an eight-year, $600m contract to run Auckland’s rail network.In May this year CPB parent CIMIC was delisted from the ASX after the completion of a takeover offer from its controlling shareholder Hochtief.

Prison contractors claim extra $430m in Covid costs

A private sector consortium developing the new Waikeria Prison has claimed an extra $430 million from the Government to cover pandemic-related costs after significant delay in the project’s completion.

If accepted, the claim would take the cost of the 600-bed facility to $1.18 billion.

A spokesperson for Morrison & Co, lead equity partner of the Cornerstone Infrastructure Partners project consortium, declined to give any further details of the costs behind the claim, the expected final project cost or the completion date.

“We can confirm we’re working closely with the Department of Corrections to resolve the resourcing and cost rise issues caused by the Covid pandemic,” she said.

“The lodging of a claim is normal practice in these situations and we hope to settle through resolution.

“We cannot provide an end date, a cost breakdown or final price at this time, as we are discussing these with the Department.”

The $430m claim received by the Department of Corrections in August was disclosed as a contractual dispute in the Government’s financial statement for the year to June.

The report said the claim was for “compensation for time and productivity losses incurred due to the Covid-19 pandemic”.

“At this stage it is not possible to reliably estimate the claim,” the statement said.

Cornerstone won the $750m public private partnership (PPP) contract to design, build and maintain the new Waikeria prison in September 2018, with completion expected in early 2022.

Corrections has said the prison is now expected to complete next year “due to the impact of Covid-19 on contractor and supplier availability”.

Others in the consortium are CPB Contractors and its sister company Pacific Partnerships, Cushman & Wakefield and Honeywell.

The new Waikeria facility near Te Awamutu is designed to accommodate 500 prisoners with a further 100 beds in a mental health and addiction treatment facility. It will replace existing 100-year-old facilities at the same location.

In April 2021 Corrections Minister Kelvin Davis said construction was making “excellent progress” and the facility would be complete in August this year.

Comment has been sought from Corrections.

Loss-making

CPB, a unit of former ASX-listed CIMIC Group which operates as a New Zealand branch, reported a loss of $202.6m for the year to December 2021, following a loss of $103.8m the previous year.

At balance date CPB, which owns 40% of the Cornerstone Infrastructure Partners Holding limited partnership, had net assets of just $3.4m and current net assets of negative $92.7m.

CPB was also the main construction contractor for the Transmission Gully roading project, another PPP, which was subject to numerous delays and cost overruns.

Transmission Gully compensation

In December 2020 the Government agreed to pay the PPP consortium – known as Wellington Gateway Partnership – compensation of $164.2m to cover the costs of delay from Covid-related shutdown, plus an extra $45.5m in contract variations. The terms required completion of the road by September 27, 2021.

The settlement followed a previous deal in February with the same partnership in which the Government agreed to pay it an extra $190.6m in “financial relief” to cover unexpected complications in the project delivery.

The road finally opened on March 31 this year.

Transmission Gully under construction.

Other CPB projects include Christchurch Hospital’s Waipapa building, which was delivered two years late, a new in-patient building at Dunedin Hospital and the Te Pae Christchurch Convention Centre.

In August last year another CIMIC subsidiary UGL won an eight-year, $600m contract to run Auckland’s rail network.

In May this year CPB parent CIMIC was delisted from the ASX after the completion of a takeover offer from its controlling shareholder Hochtief.