11 May 2018

Middlemore: Board was pressured to settle for $3m

8:56 am on 11 May 2018

Newly released documents show the Counties Manukau District Health Board reluctantly settled for $3 million compensation for one of it worst leaky buildings.

Middlemore Hospital

Photo: RNZ / Claire Eastham-Farrelly

Board members said they were being 'time-crunched' and the deal was unfair, but were told the builder Hawkins would not budge even though the cost of fixing its poor workmanship was going up and up.

The minutes of five board meetings addressing the leaky buildings have been released to RNZ under the Official Information Act, after the intervention of the Ombudsman when the DHB initially refused to release them back in March.

The board is told in November 2016 that a report from an independent mediator "showed that Hawkins Construction failed in their work".

Most of the minutes do not give the name of who is speaking.

Read the full minutes here or scroll to the end

Timeline shows costs escalating

  • November 2016 meeting: Hospital management tell the board: "There is $6M of work to be done to remedy the situation, split 50/50" between Hawkins and the DHB.
  • December 2017 meeting: Under a looming deadline the board debates whether to agree to a contract with Hawkins for $18.8 million. Its own cost consultants advise them it not to accept this contract and to look for another builder.
  • April 2018: The board signs the contract with Hawkins. Contingencies push the estimated cost to $27.5 million. This amount does not cover the "unquantifiable risks" of sewage repairs, for which $2.5 million extra is being allowed, the minutes show.

Pressure intensifies on the board to agree to settlement and repair contract

The board minutes show Hawkins never budged on the $3 million figure from 2012 - when they confirmed four buildings were leaking badly - and 2017, when they settled out of court with Hawkins.

The settlement covered just one building, the Scott, as the other three had fallen outside a 10-year limit on suing a builder.

The minutes show in March 2017 a board member saying the $3 million offer was "completely unacceptable".

The management team tells the board they've "been trying hard to get Hawkins up to $4M, but they have refused".

Within weeks of the March 2017 board meeting they have accepted the $3 million.

At this same March 2017 meeting, some board members say they do not want to use Hawkins at all for the repair job, saying they have no confidence in it.

However, management told them Hawkins "have a good name", had experience in hospital jobs, and that there would be extra monitoring.

The managers added they had a "high level of confidence" in the repair method Hawkins would use on the Scott building.

Yet just a year later, in a confidential briefing RNZ obtained, the DHB called the method of recladding while patients were still inside, "risky" and virtually "untested" worldwide on such a scale.

In mid-2017 Hawkins was bought by the Australian group Downer.

A diagram shows the layout of Middlemore Hospital.

A diagram shows the layout of Middlemore Hospital. Photo: Supplied

The board did veer closer to ditching Hawkins. On 6 December it met. Two days later was a deadline in the settlement, after which, Hawkins was no longer obliged to negotiate in good faith on the repair work.

Members debated the advice from their own cost consultants to drop Hawkins and find another builder.

"It feels like we are being time-crunched. We are getting a price that is 45 percent up on this time last year, we are being advised by our cost consultants not to take it, Hawkins are being inflexible and have an unfair margin."

"The $18.8 million [contract] is not the problem, the problem will be when the building is opened up and what might be found."

"What about the contingency on this building, likely to be 50 percent on top."

They raise the prospect of the bill topping $32m and triggering a review by the Office of the Auditor-General.

"What would they say about the decision we are going to make now - the margin was unreasonable; you had advice from external experts; and, it was a sole source arrangement."

The board opted to try to push Hawkins down to $16 million to reclad the Scott.

It didn't work.

The cost of recladding all four buildings - Scott, McIndoe, KidzFirst and Manukau Superclinic - is now being estimated by the DHB at about $70 million.

Another 11 buildings also have multiple problems with leaks, asbestos or seismic issues.

RNZ is seeking comment from Downer about Hawkins.

In March, Downer told us that "Hawkins 2017 Limited has been negotiating with CMDHB in good faith to finalise the construction contract for the Scott Building. This process is confidential".

It would not comment on the quality of the original building work.

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