New jails break budget by $140m

The cost of building two prisons has soared by $141 million in just six months after a Corrections Department miscalculation.

Corrections Minister Damien O'Connor has ordered an independent investigation into the error to find out if the projects have been properly managed.

The over-runs involve the North Waikato 650-bed Springhill facility and the 330-bed Otago regional prison.

In its May Budget bid, Corrections estimated the cost of building Springhill at $282 million.

Last month it increased that by about $98 million, bringing the final figure to $380.3 million.

National Party Corrections spokesman Simon Power said the initial estimated cost of the prison, due to open in October next year, was $184 million, less than half the amount now proposed.

Costs for the Otago prison have jumped $43 million from May, bringing the total cost to $217.9 million.

Mr Power said the blow-out was "ineptitude of the highest order".

Mr O'Connor has allowed Corrections to use cash earmarked for other projects to cover the increased costs.

Cabinet papers released yesterday to the Herald show that deferred maintenance at other prisons, such as the aged Mt Eden facility, will not be able to be addressed as a result.

The Corrections portfolio has been the subject of increased scrutiny over the past year as the department struggles to deal with higher prisoner totals than predicted.

Inmates are regularly placed in court and police cells to enable the department to cope.

The Cabinet approved the extra funding after being warned that if the matter was deferred until the next Budget, Corrections - whose prison-building programme is one of the country's biggest construction projects - might lose key building contractors. That would further compromise its ability to cope with forecast inmate numbers, said the papers.

Mr O'Connor said there were a number of reasons for the under-estimation, including a tight labour market and rising building material costs. The two facilities were being built at the height of the construction boom that had seen non-residential construction costs rise 15 per cent since 2003, he said.

But the papers also showed that half of the extra money now sought for Springhill - $50 million - is a result of "omissions from previous estimates". Resource management compliance and a range of site works had been inadequately estimated.

Mr O'Connor said he was concerned that the final costs were substantially higher than predicted and wanted assurances that the projects were being well-managed.

"Every aspect of the projects will be carefully scrutinised, including whether the mechanism for reporting to the Government was appropriate for a capital project this size."

The State Services Commission and the Treasury will conduct the review, expected to take four months.

Mr Power said the review would "only confirm what the public already suspects - that Corrections management is out of its depth".

Corrections chief executive Barry Matthews said that "like other organisations, we've been caught by increased costs in the construction industry".

He supposed the concern was that the factors were not foreseen, or that a greater contingency provision had not been made.

"But we're using 1/20th of the non-residential construction industry at the moment and because we're time-bound, we've got to get these things built ... We really had to pay top-dollar to ensure we got first pick at some of the construction groups."