Incoming ministers will be watching closely as the new so-called 'Ministry of Works' defends the biggest single legal liability on Crown books
Analysis: The Government's newly-expanded infrastructure company Rau Paenga has won an important preliminary legal battle over a big earthquake rebuild project – but the war is still to be fought.
The dispute with Australian construction firm CPB Contractors is the biggest single legal dispute inherited by the incoming government – a budgeted contingent liability of $197 million in the Treasury’s pre-election fiscal update. Since that update, the Crown’s legal exposure has climbed to $439.4m.
In Auckland this week, Justice Geoffrey Venning granted Rau Paenga an order restraining CPB from placing an engineering stop-work notice on the Parakiore Recreation and Sports Centre in Christchurch. The project is already running nine years behind scheduled due to ground conditions and Covid-19.
READ MORE: * New $100m 'Ministry of Works' already forced to rescue public projects * Earthquake rebuild agency takes over Govt infrastructure in major shake-up
Once completed, Parakiore will be the largest aquatic and indoor recreation and leisure venue of its kind in NZ -- but the wait has become interminable, and the costs breathtaking. CPB was initially contracted to build it for $220m, but it’s now blown out to $365m.
And if CPB were to win its case for more payments, the total cost of the project would soar to $696m.
The dispute will be watched closely by the new infrastructure minister, likely to be Chris Bishop, as it goes to the heart of Rau Paenga’s competence to manage big projects. Originally named Ōtākaro Ltd, it’s the government company that delivered infrastructure to support the post-quake regeneration of central Christchurch.
But as Newsroom revealed last year, Grant Robertson saw it as the solution to a wider problem: the difficulty faced by smaller crown agencies and local councils in managing big infrastructure projects. Rather than winding it up at the completion of the last Christchurch project, he decided it should expand nationwide.
Among its projects, it’s designing a new Ministry for Primary Industries plant health laboratory and quarantine facility in Auckland; helping deliver the new National Archives building, project managing Ashburton's new library and civic centre.
And, in a quirky twist, it was already in court in Auckland: It’s tasked with the three-year remediation of the Auckland District Court.
It’s not just Rau Paenga that has history in the courtroom. CPB has been a regular in NZ court disputes. It won a High Court stoush with an electrical subcontractor over the building of Christchurch Hospital.
It’s the plaintiff in an ongoing dispute over the tendering and construction cost overruns of Transmission Gully motorway – and most recently challenged the public disclosure of court documents to RNZ.
Before that, the court had fined it for environmental contamination breaches on the Gully project; it was also fined for similar breaches at a project in Mt Maunganui.
On Parakiore, it’s gone to court seeking more money because of Covid-19 and associated delays, adverse ground conditions, and because it says Rau Paenga has not provided acceptable building design documentation.
That’s rejected by the agency. Chief executive John O’Hagan tells me Rau Paenga has confidence in the quality of its design. The sports centre is more than 70 percent complete, he says, and CPB has been paid around $220m to date, including some Covid-related claims.
But in September 2022 the Australian firm claimed an additional $212m, which it then increased to $439.4m at the start of September 2023.
The relationship has broken down, and seems irreconcilable. CPB’s Kings Counsel Dr Simon Foote says ‘Humpty Dumpty can’t be put back together again’ and the court should suspend or terminate the contract. O’Hagan counters that completing the project before 2025 “will be challenging given CPB’s current stance”.
This is just a preliminary judgment. If Rau Paenga fails in the substantive case, Justive Venning rightly says it would suffer a loss of reputation. “While that is intangible, it is still real. It would be relevant to and affect the ability of Rau Paenga Ltd to engage alternative contractors in the event of termination.”
That reputational damage would not just be to its relationship with the construction sector, but to its relationship with an incoming government that has shown it’s willing to undo its predecessor's work – especially around planning and infrastructure.
