Fletcher in $31 mln dispute with ministry over Greymouth hospital

Tuesday 15th October 2019

Fletcher Building is in a $31 million contractual dispute with the Ministry of Health over the unfinished, overbudget $77.8 million Grey Base hospital in Greymouth.

The NZX-listed construction company won’t talk about the dispute “due to the confidentiality requirements of our contracts,” but the matter was disclosed in the government's June 2019 accounts as a contingent liability.

Fletcher was awarded the contract for the 8,500 square metre, 56-bed hospital in 2015 and it was due for completion in 2018.

The dispute is likely to play out in secret as the NZX-listed construction company has given notice for arbitration proceedings. The parties are yet to set a date or appoint an arbitrator.

The government's accounts, released last week, show Fletcher initiated the case and mediation was held on Sept. 17, with both parties unable to come to a resolution on disputed costs.

A Ministry of Health spokesperson could not give an opening date for the hospital but said it is in regular contact with Fletcher to get it done as soon as possible.

“While the physical building is reaching a high level of completion, there is still a large amount of work to be completed by Fletcher's to ensure they fulfil all their contractual obligations before sign-off can be done, as well as the commissioning of the building."

In 2016, the ministry said the project would cost another $9.7 million because subcontractors were expensive and it was competing for workers on the Canterbury rebuild. The original estimate was $68.1 million.

The West Coast District Health Board’s annual plan for 2018/19 estimated the hospital would cost another $10-13 million.

The ministry said in a statement the budget has “increased slightly.”

“As with all construction projects, there are issues that require resolution on build and costs, as we're nearing the end of the project. For commercial reasons we can’t comment further on the budget at this stage.”

In 2012, the West Coast Partnership Group was formed specially to oversee the development. Its chair, Clayton Cosgrove, referred all questions about the dispute to the Ministry of Health, which didn't respond to BusinessDesk’s question for detail about the case in its emailed response.

However, partially redacted meeting minutes of the group have been available online since 2016, the most recent of which are dated May 3, 2019.

The May minutes record how at the time the group agreed for fortnightly meetings to be held between the DHB’s deputy director-general of performance Michelle Arrowsmith and the head of Fletcher’s construction division Peter Reidy, with invited other key parties for “issue resolution purposes.”

“In essence, it was considered that there were few instances where the ministry and consultants were holding up issues that impact on the contractor’s ability to progress the work and what issues were raised were quite recent ones. On a positive note, senior Fletcher management are trying to manage the issues and move forward,“ the minutes say.

“Minutes are to be taken of these meetings to ensure accurate records are kept including the contractor’s confirmation that the ministry and consultants are not causing the contractor delays.”

Partnership group member Terry Moore noted that he considered it important to keep the relationship with Fletcher non-legal "as long as we can in terms of ensuring the quality is worked on and to keep the pressure on to respond to observations in a timely manner,” the minutes say.

Meanwhile, Fletcher is currently fighting a $7.5 million case brought by Electrix, one of the subcontractors on the Christchurch Justice and Emergency Services Precinct in the High Court at Auckland.

In August, Precinct Properties said it had withheld $34 million for delays on its Commercial Bay project in Downtown Auckland while in same month SkyCity Entertainment Group said it had withheld $39.5 million in liquidated damages for the International Convention Centre.

(BusinessDesk)

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