30 May 2018

Middlemore failed to pursue millions in leaky building claim

6:51 am on 30 May 2018

Court papers show Middlemore Hospital failed to pursue millions of dollars in a leaky building claim against construction firm Hawkins.

Middlemore Hospital

Photo: RNZ / Claire Eastham-Farrelly

They also show the Counties Manukau District Health Board drastically cut back its estimate of what the repairs would cost, to $6 million, but the actual bill is heading towards five times that.

The DHB's High Court statement of claim has been released to RNZ, as well as the statement of defence from an offshoot of major building company Hawkins, Hawkins Construction North Island Ltd.

Read the Counties Manukau District Health Board Statement of Claim (PDF 1.7MB)

Read Hawkins Statement of Defence regarding Counties Manukau DHB (PDF 950.1KB)

The claim was lodged in 2012 for $12.3m but was never actioned.

Instead, the health board settled out of court just last year for $3m.

The board in a statement defended its actions even as taxpayers face huge bills to fix the Scott Building and three other badly leaking buildings constructed by Hawkins.

"The proceedings were issued hurriedly in order to safeguard against what were already considerable limitation issues," the board said.

The 10-year limitation on suing Hawkins would not have been so pressing if the board had acted in 2010 when it first learned of the leaks at Scott Building.

Instead, it waited until 2012 before surveying the buildings.

"Hawkins knew that the hospital was to be used as a medical facility and knew, or ought to have known, that any failure to construct the building work in a thorough, professional and competent manner could require repairs and interfere with the treatment of the patients at the hospital," the statement of claim said.

An independent survey company, Alexander and Co, provided the $12m repair estimate for the court claim.

But by 2015, the board had halved this to just $6m on the advice of a second survey firm, Rider Levett Bucknall.

"The $12 million was a preliminary budget estimate done with little information and without verification - the $6 million was a considered estimate with verification," the DHB told RNZ.

Counties Health top executives told board members in November 2016 that Hawkins would pay half the $6m of repairs under an out-of-court settlement.

Within months Rider Levett Bucknall had upped the repair estimate to $14m.

This year a contract was signed for $18m, which with contingencies will top $27m; this contract is with Hawkins 2017 Ltd, after Hawkins was bought by Downer in early 2017.

The board had come under increasing pressure from its own executives in 2017 to both sign the $3m and agree to Hawkins doing the repair work on Scott.

In the event, the preliminary 2012 estimate was far closer to the contracted costs, than the later, "considered" and verified estimate.

The board has listed five reasons why it did not try for greater compensation:

  • 10-year limit on suing
  • Hawkins "was a shell company as far as could be determined. There was little point spending further amounts on legal fees in an attempt to obtain a judgement. There were no other entities who had legal obligations to the DHB and who could be chased"
  • "The cost of further dispute and delay, and the likely derailing of what was a ... likely settlement to a dispute some years in age"
  • Negotiations with Hawkins 2017 Ltd on how to fix the Scott building "would likely have been derailed by a further claim"
  • The DHB's losses, such as for disrupted services, were not simple to quantify and were likely to be challenged.

The rump company left behind by Downer buying Hawkins, called Orange H Group, went into receivership earlier this month, owing at least $13m over badly leaking school buildings.

"The ... school will now need to sit behind the Group's secured creditors and see what, if any, money remains to satisfy the award. While not looking to justify the DHB's decision in relation to the settlement this certainly suggests that some considerations ... were real," the board said.

At no time did the district health board pursue Hawkins for all the extra costs of disruption.

While it said these were probably "not significant", it also said the method for repairing the Scott, while keeping patients inside, would add significantly to costs as the repairs were very complex.

Its other three leaking Hawkins-constructed buildings, while less than 20 years old, all fall outside the 10-year limitation for court action.

The board also has seven other leaky buildings not in this cohort of four built by Hawkins.

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