Next steps on the New Dunedin Hospital

The Government is seeking advice on two options for delivering the New Dunedin Hospital project within its existing funding appropriation to ensure the people of Dunedin get the modern, fit-for-purpose medical facilities they need.

At the same time, Ministers have warned that much-needed upgrades to other regional hospitals could be at risk if budget blow-outs at New Dunedin Hospital aren’t addressed, Infrastructure Minister Chris Bishop and Health Minister Dr Shane Reti said today.

“The project had approved funding of $1.59 billion under the previous government. In March this year, Cabinet agreed to authorise a further $290 million in capital funding due to cost pressures. The current appropriation is therefore $1.88 billion,” Mr Bishop says.

“We now know that the New Dunedin Hospital, as currently designed, can’t be delivered within that appropriation. In fact, despite the project’s original 2017 cost estimates of $1.2 - $1.4 billion, it’s now possible it could approach $3 billion, which would make it one of the most expensive hospitals ever built in the southern hemisphere.

“This cost simply cannot be justified when hospitals around New Zealand are crying out for maintenance, upgrades and new facilities. Dr Reti and I are concerned that badly needed infrastructure upgrades to Whangarei, Nelson, Hawke’s Bay, Palmerston North and Tauranga hospitals may be put at risk if New Dunedin continues to go so far over budget.

“Because of our concerns regarding the project, earlier this year Cabinet commissioned a one-off independent review into the project which was undertaken by independent expert Robert Rust, former chief executive of Health Infrastructure New South Wales.

“Today we are releasing Mr Rust’s report and its findings to the public. The people of Dunedin deserve transparency about this problematic and poorly-managed project – and so do all the taxpayers who are funding it.”

The Rust Review found that ‘the delivery of the NDH project as currently scoped and planned is probably not achievable within the approved budget and that there remains significant uncertainty as to the cost of the Inpatients Building.’

Dr Reti says the uncertainty is due to several factors that not only impact its financial achievability but also go to the heart of whether the new hospital can deliver the health outcomes promised.

“The Rust Review makes it clear that, even now, the specifics and scope of the project are still being debated,” Dr Reti says.

“To make matters worse, insufficient money had been set aside for other associated costs such as a pathology lab, refurbishment of the existing facilities and car parking which are collectively estimated at an additional $400 million. No business cases have been prepared for any of these additional elements of the project.

“Compounding our concerns is the fact that recent project pricing came in several hundred million dollars over the hospital’s appropriation, even without including the pathology lab, refurb of existing facilities or car parking.

“Health NZ and Infrastructure Commission advice has made it clear that this project was troubled from the moment the site was selected in 2018 and has been trapped by this poor decision making ever since.

“The extraordinary cost premiums associated with the land purchase and demolition costs, contaminated ground, piling difficulty, flood level risk, and an extremely constrained construction site flanked on three sides by state highways made it an unattractive project for contractors and suppliers, further driving up construction costs. Since the 2017 Business Case, the cost per square metre to build the hospital has increased by 200% from $10,000 per sqm to $30,000 per sqm.”

Ministers have instructed Health NZ that the project is to be delivered within its current appropriated budget of $1.88 billion, and to provide urgent advice on two options for delivering it:

1. Revision of the project’s specification and scope within the existing structural envelope, such as reducing the number of floors, delaying the fit-out of some areas until they’re needed, and/or identifying further services that can be retained on the existing hospital site or in other Health NZ buildings within Dunedin among other possible solutions.
2. A staged development on the old hospital site including a new clinical services building and refurbishing the existing ward tower.

Officials will deliver this advice in the coming weeks.

“We’re incredibly frustrated by the challenges in delivering these much-needed, modern, fit-for-purpose hospital facilities, just as the people of Dunedin and its surrounding regions are. We remain committed to finding a solution, but we must now take urgent steps to apply the long overdue rigour which all taxpayers would rightly expect,” Mr Bishop says.