15 Mar 2023

Alarm over massive cost overrun for much delayed mental health ward

8:40 pm on 15 March 2023
MidCentral District Health board vaccination rates largely mirror national ones.

Palmerston North Hospital. Photo: RNZ / Jimmy Ellingham

Palmerston North Hospital's long-awaited new mental health ward is facing a multimillion-dollar budget blowout.

Te Whatu Ora documents reveal costs for the build have gone up 71 percent, sparking fears about how officials will respond.

The government signed off on the new ward in 2020, five years after reviews found the present one unfit for purpose.

With a budget of $30 million and a contingency of another $5m, construction was expected to finish at the end of 2022.

But that did not happen and completion of the building is now set for mid-2025.

A recently published Te Whatu Ora document revealed the sharp cost increase, which has been put down to contractor availability, meaning the ward's budget could hit $60m.

The Ministers of Health and Finance, Dr Ayesha Verrall and Grant Robertson, respectively, will this month consider Te Whatu Ora's budget increase request.

The 2015 reviews into the present ward followed the deaths in 2014 of ward patients Erica Hume and Shaun Gray in suspected suicides. Inquests were held last year.

Erica Hume's mother, Carey Hume, said she was worried about the potential effect of the blowout.

"It raises serious concerns about the new ward being built to the highest standard required to keep the patients and staff safe whilst they recover to their full health," she said.

"There's extreme risk the ward design will be compromised or cut back...

"At this rate I'm thinking how many years will it have been since Erica and Shaun's deaths before they get a suitable mental health ward in Palmerston North.

"They died in 2014. Enough is enough."

Carey Hume (left) at the inquest of her daughter Erica Hume (in framed picture) who died in a suspected suicide when she was a Palmerston North Hospital mental health ward patient.

Carey Hume (left) at the inquest of her daughter Erica Hume (in framed picture) who died in a suspected suicide when she was a Palmerston North Hospital mental health ward patient. Photo: RNZ / Jimmy Ellingham

That sentiment was echoed by Shaun Gray's brother, Ricky, who said the blowout could have been avoided if a new ward had been built sooner.

"It doesn't take a rocket scientist to work out that inflation across the construction sector is going up on average 10 percent a year.

"Given the unacceptable delays to get the ward underway the question now resides with the governance of this project, particularly the budgeting of the project."

He said the then-MidCentral District Health Board had large cash surpluses of more than $50m around 2015 that, if spent on construction at the time, would have ultimately saved millions.

The present ward often runs at or above capacity, more patients have died since 2015, and last year Chief Ombudsman Peter Boshier described it as one of the worst in New Zealand.

'The health budget isn't immune' to cost pressures - Health Minister

Dr Verrall confirmed she was aware of the blowout.

"The health budget isn't immune from the same pressures we've had with capital cost escalation because of supply and labour, and that needs to be worked through over time."

She believed the cost increase would be unlikely to alter the ward's opening date.

"It's not the time. It's just making sure that the appropriate management of this cost escalation occurs, and there's a process for that in Te Whatu Ora and then with ministers."

Ayesha Verrall

Dr Ayesha Verrall does not believe the cost overrun will change the ward's opening date. Photo: RNZ / Samuel Rillstone

Asked if it could have any effect on services provided, Verrall said "that's well ahead of where the decision is at".

"We just need to work through that in a systematic way."

In a statement, a Te Whatu Ora spokesperson said the request for a budget increase for the new unit was "due both to cost escalations and improvements to the building's design".

"The ministers of health and finance will be considering the request later this month.

"The business case and budget for the project was approved in 2020. Since then, infrastructure projects across all sectors have been subject to significant cost escalations, partly due to inflation, and pandemic-related costs," the statement said.

"Since the business case was approved, the design has been developed further to account for changes to the Building Code, a requirement to manage airborne infectious diseases within the unit, and to include improved environmental sustainability and resilience and cultural elements."

The statement said "early works" on the construction began last month.

A contractor for the main work had not been engaged yet, but the "indicative" date for completion was still the second quarter of 2025.

"Te Whatu Ora is working to strengthen the understanding and management of costs across infrastructure projects in order for the board to be able to prioritise funding in support of health objectives.

"With the current cost increases being experienced across the infrastructure sector, there will be ongoing review of projected costs and advice provided to the board as required to manage any cost pressures."

Earlier today RNZ revealed Te Whatu Ora was considering "lessons" from public-private partnerships although government ministers have denied looking at such partnerships to pay for health infrastructure projects.

Cost, labour pressures in construction sector

Construction company Naylor Love's chief executive, Rick Herd, said across the industry costs were up.

In his 50 years he had never seen anything like the increases of the past five years.

"We've seen [for] regular materials cost increases of at least 10, 15, 20 percent on an annualised basis. We're talking huge numbers."

Budgets from three or four years ago would today need serious revision.

On top of that, skill shortages continued to bite.

"The industry is short of skills in every facet, from design, architects, draftsmen, engineers, quantity surveyors, right through the trades - carpenters, concrete placers, painters. The whole gambit."

Herd said the industry was unproductive, slow and expensive, and needed to change.

Naylor Love is not involved in the construction of the Palmerston North ward.

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