Cost Blowouts and Governance Failures at New Dunedin Hospital: Time for a Project Rescue?
The New Dunedin Hospital project, approved in 2018 with a budget of NZD 1.4b faces major challenges. The plan included a 13,000 sqm Outpatient Building and a 74,000 sqm Inpatient Building for completion by 2026 and 2029. However, costs have now escalated to NZD1.9b.
Yesterday, our Infrastructure and health ministers announced that the project would be rescheduled and possibly abandoned after cost estimates surged to NZD3b (NZD30,000+ per sqm), which is three times the cost of similar projects in Europe and the US.
An independent review (https://lnkd.in/gdFM-SBM) highlighted governance, cost and [risk management issues. The Outpatient Building will progress, but the Inpatient Building has budget and scope issues, with insufficient contingencies. However, procurement and contracting—key causes of the infrastructure failure—were not addressed in the review.
My Assessment and Recommendations
50-60% of infrastructure projects experience cost overruns and time delays, but this case is more severe. Fundamental errors were made by starting procurement and construction without a detailed design, reliable cost estimate, or appropriate contingencies.
Here’s how I recommend moving forward:
1. Immediately Cost Revision for the Outpatient Building: Revise cost estimates immediately to prevent further overruns and keep the Outpatient Building on track (carve out a separate contract for this).
2. Renegotiate Contracts for the Inpatient Building: The Inpatient Building contract should be renegotiated with the help of a procurement specialist. The current contractor will want to avoid reputational damage, so renegotiation is feasible. Meanwhile, explore alternative contractors with hospital experience: Here are three suggestions: China State Construction Engineering Corporation (CSCEC) – the largest global construction firm. Laing O’Rourke (UK) – specialists in large hospital projects, such as Alder Hey Children’s Hospital. Skanska (Sweden) – known for their work on the New Karolinska Hospital.
3. Comprehensive Project Cost Update: Revise all project costs, risks, and timelines, focusing on the Inpatient Building where risks are highest.
4. Engage a Specialist Rescue Manager: A specialized project rescue manager is essential. Firms like Mott MacDonald (my ex-employer), Turner & Townsend, or McKinsey have the experience to bring this project back on track.
5. Use AI-Driven Digital Twin Technology: Integrating AI-driven digital twins can improve simulations and real-time monitoring, reducing future risks.
Cost of Hiring a Specialist Rescue Manager. Hiring a top project rescue firm would likely cost 2-5% of the total project budget. With a budget of NZD3b, this would translate to NZD 60 million to NZD 150 million—a crucial investment to avoid further cost blowouts and delays.
By taking these steps, the New Dunedin Hospital project can be saved.