Cost estimates for Middlemore Hospital's leaky buildings balloons

The cost estimate for fixing leaky buildings at Middlemore Hospital has more than doubled.

But inflation is easing within the construction industry, lessening the pressure on district health boards that face billions of dollars in bills to upgrade old wards and operating theatres.

At the Counties Manukau District Health Board, its estimate for recladding three leaky buildings has risen from $20m just 18 months ago, to $45m now.

For the children's hospital, Kidz First, the estimate has almost tripled to $20m on its own, and that does not even cover a full reclad, just the stop-gap refixing of panels above walkways.

However, the health board disputes there has been any blowout.

"It is incorrect to say costs have blown out by 2.5 times, as the costs have yet to be established," it said in a statement.

"The cost will depend on many factors such as methodology, state of the industry, time and materials chosen and the further deterioration of timber."

Those timber frames have been rotting for at least a decade.

But the DHB stresses it still does not know exactly what it's dealing with, and won't until the walls come off a fourth building, the acute care Scott wing. It's the only area where work has actually begun and where the estimated cost remains steady at around $18m.

Leading estimator Steve Gracey of Rider Levett Bucknall, which does quantity surveying for Counties Manukau, said the rise in indicative costs was "quite high".

"But leaky buildings are notoriously difficult to scope, it's difficult to understand the extent of the damage without taking the wall linings off," Mr Gracey said.

"Probably on top of that there have been some council rule changes - this is in the wake of Grenfell [tower fire in London], so the cladding requirements have changed."

The Middlemore recladding is included in a pipeline of major infrastructure projects put out last week by the Treasury, where three of the South Auckland hospital's four buildings (not including Scott) are costed at a low $25m to up to $50m to fix.

"As work is only just beginning on Scott, the assumed methodology has yet to be tested," the DHB said.

"In addition, the challenges with the construction industry in Auckland have also contributed to varying costs and as such, we're taking a conservative stance in allocating indicative costs."

Institute of Economic Research principal economist Christina Leung said the construction price pressures in Auckland were spreading to other centres.

Overall though, construction inflation was easing, from close to 5 percent, and should reach a near-normal 3 percent in a few years, Ms Leung said.

That's good news for the Ministry of Health, which is also not sure just what it is dealing with.

RNZ's enquiries have established that the ministry has not updated an 18-month-old estimate that the country's hospitals need $14 billion of facilities upgrades over the next decade.

The ministry also does not have a national assets plan yet.

Health Minister David Clark in a statement confirmed the lack of data: "The $14 billion figure is a high level estimate provided by Treasury resulting from an exercise run in late 2017 by the Ministry of Health to look at the long term needs of the sector rather than a running total of likely capital requirements.

"I expect the accuracy and certainty in capital planning in the health sector will improve over time as we develop the National Asset Management plan."

Dr Clark's office could not say when that plan would be ready.

The ministry later told RNZ in a statement it would be done by the end of the year. "Following this, we will revise the high level estimated figure," it said.

The pipeline from Treasury includes 14 health projects worth between $1.7 and $2.4b over five years, or less than than half what the ministry's 2017 estimate said might be needed.

The billion-dollar-plus Dunedin Hospital rebuild is the biggest item.

Another large one is Auckland DHB's $250-500m "remediation of urgent infrastructure at Auckland City Hospital and Greenlane Clinical Centre to address high risk of service failure".

Only a tenth of pipeline projects are close to or under construction. The business cases for the rest have a new pressure to contend with: The government's new commitment to spurn lowest-price tenders in favour of quality builds, as outlined in its recent construction accord.

"It's an excellent initiative," said Steve Gracey who heads Rider Levett Bucknall.

"It probably will push up the cost in the short term, the capital cost, but ...the actual cost of running the hospitals ...over five years, you've effectively paid for the capital cost of the hospital.

"So if they can make incremental savings through the operation or maintenance of the hospital, it's got to be good for the taxpayer."

Or maybe not, according to Construction Strategy Group chair Geoff Hunt, who said when more effort went into design and quality at the front end, construction costs themselves could actually drop.

He cited a case where the company he led Hawkins built four schools, of which three were rushed.

He said they were given more time for design on the fourth school and identified a 30 percent savings on steel with no drop in quality.

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