Commercial risk not government's concern in major projects - Prime Minister

Cost overruns that push major building projects into the red aren't the government's concern, and it's instead focused on ensuring those builds are delivered on time and to budget, says Prime Minister Bill English.

Mr English confirmed he'd heard speculation that government projects had contributed to Fletcher Building's 15% earnings downgrade, but says he hasn't had any specific conversations about them.

The government has 53 major projects, accounting for $37 billion of spending that attracts special attention from the Treasury, including the $300 million Fletcher-built Christchurch Justice Emergency Services Precinct.

The last major project report for November said the project was on track for the March 31 handover. However this month The Press newspaper reported the precinct handover had been delayed until the end of June.

"We publish the major projects report – any indication of delays will have been published by now," Mr English says. "Commercial risk for the supplier is not our concern, we just want to make sure the project's on time and on budget and it's up to them to deal with whatever commercial issues arise from that."

Fletcher downgraded annual earnings by $110 million to a range of $610-650 million, half of which was down to losses incurred on a major project and the balance from another major project attracting provisions for losses due to significantly higher costs needed to complete it. A number of smaller jobs also faced lower earnings. The company refused to name the projects, citing client confidentiality.

Chief executive Mark Adamson says he and the board are preparing to discuss whether there is scope for a claim against other parties, a decision they weren't taking lightly.

One of the projects was expected to be completed within the next few months and the other has a target date for the 2019 financial year. Fletcher said the main problems were in the complexity of design, subcontractor management and building programme delivery, which delayed the projects and led to higher costs.

The company's other projects include Auckland's convention centre and Hobson St hotel, a $700 million contract, the $425 million Commercial Bay development in Auckland for Precinct Properties, and roading work including the Waterview Connection, and Puhoi to Warkworth.

Earlier this month the Treasury said its ability to monitor the biggest and most complex projects was stretched as it dealt with greater demand for its oversight by other government agencies, and last year when he was still finance minister, Mr English scaled back the number of major project reports published annually by the Treasury to one full report and two high-level updates from what had been three reports, in an effort to cut costs.

(BusinessDesk)