Q and A

Why do NZ infrastructure projects always go over budget?

Sun, Mar 19

An expert on infrastructure believes that committing too early to projects is a major reason why eye-watering costs so often end up being added on.

Infrastructure project budgets in New Zealand routinely blow out, with the proposed Lake Onslow pumped hydro scheme going from an estimated $4b to an estimated $16b being the latest example.

Speaking to Q+A, Infrastructure Commission chief executive Ross Copland said announcements often precede business cases being done, so "these projects are committed too early".

"Often engineers haven't actually had the chance to do a geotechnical conditions assessment, look at the market costs, and there's a whole lot of other factors that might change during the duration of these projects," Copland said.

With work on Lake Onslow still in the planning stages, it is likely the latter figure represents something closer to the true cost. The Government is now exploring multiple options.

"Lake Onslow is actually one where we initially were a little bit concerned about the announcement, but then really pleased to see the business case process examining a full range of options," Copland said.

"That's exactly what we'd like to see more of," he said, "that politicians are really clear that they're announcing a 'problem definition', and then handing over to a delivery team."

The Infrastructure Commission released a report in December which noted New Zealand projects inevitably end up costing more than overseas, for reasons including relative isolation, difficult geography, and relative lack of expertise in the country.

Other completed or underway projects have seen actual spending go far above optimistic early proposals.

The partially-completed City Rail Link has gone from a price tag of $3.3b, to $4.4b, to the most recent update of $5.5b, prompting Auckland Mayor Wayne Brown to demand more central government support to cover the difference.

The recently-opened Transmission Gully saw costs go up almost half a billion dollars, to a final price of $1.25b.

Stadium construction is notorious for price escalation, with Forsyth Barr Stadium in Dunedin going up by $36m in the construction process, and the budget for Christchurch's under-construction Te Kaha going up by $150m.

And in recent years Fletcher Building has found itself in financial trouble due to cost overruns in their Christchurch Justice Precinct and Auckland Convention Centre projects, resulting in shareholders this week initiating legal action against the construction giant.

Copland said in instances of cost blowouts, contractors and clients need to work more collaboratively to fix the issues, rather than getting into a standoff over who should pay.

"The challenge for these contractors and companies is when project scope expands, when changes are made in the design because the early information wasn't available to them, or when they have quite adversarial contracting arrangements that really force each party back into their corner," he said.

He also pointed out that infrastructure problems don't always have to be solved simply by building something, and often other solutions should be investigated.

New Zealand is widely acknowledged to have an infrastructure deficit, with Finance Minister Grant Robertson saying in May 2022 closing the gap would require spending "over $31 billion per year — a sum that we would struggle to afford or have the capacity to deliver".

Q+A is Public Interest Journalism funded through NZ On Air