Costs for a building renovation to house 700 health board staff have blown out again, this time from $14.7 million to at least $23m.

It's the second time in two years the cost for Waikato District Health Board to refurbish the former Farmers building in Hamilton has blown the budget, after the original cost of $7.7m was increased under approval from the Ministry of Health last year.

But Waikato DHB has dropped plans to house diabetes and mental health staff in the office block to avoid paying the extra $8m.

The board discussed the matter behind closed doors on Wednesday but released details of its decision today after inquiries from the Herald.


Interim chief executive Derek Wright said in a statement the project had to stay within its $14.7m budget so accommodating diabetes and mental health services was not an option, despite them being planned for last year.

"Changes to the models of care for mental health and diabetes services coupled with the likelihood of increased construction costs in the current environment, have resulted in Waikato DHB deciding to modify its proposals for the CBD building [old Farmers] in Hamilton," the statement said.

It also said the likelihood of increased construction costs in the "current environment" were also a factor.

Wright said the project was on track to cost at least $23m and could mean a further two-year delay because of the Ministry of Health approvals needed to go outside the original budget.

Last year the DHB had to get approval from the Capital Investment Committee, of which then deputy board chair Sally Webb was a member, to continue with the project when the budget doubled to $14.7m in just 12 months.

"Much of the original project scope could be delivered within budget and could be completed by August next year," Wright said.

The building renovation had been ongoing for the past year.

Wright said about 700 staff would still move into the central business district building with some moving from the Waiora Waikato Hospital site to make room for clinical expansion and to allow walk-in services to be given priority at the hospital.


"Consolidating staff from several services in one place was always part of the original business plan because of the savings in rent, a reduction in the car fleet and improved interaction between staff groups."

Once the CBD building was fitted out, surplus space and leased space on Level 9 of the adjacent KPMG Tower would be vacated resulting in more savings, Wright said.

"Diabetes and adult mental health services will remain in their Clarence and London St sites to allow for their new models of care which could not be clinically delivered from the CBD building."

The refurbishment was labelled by senior doctors as a "pet project" of former Waikato DHB chief executive Dr Nigel Murray, who moved his executive management team there before he resigned in October last year amid a spending scandal.

Doctors said it took managers away from the coalface at Waikato Hospital where they were grappling with under-resourcing and increasing patient demand.

When Wright took the reins he moved the then 18-member executive team back to the Waikato Hospital campus.

A DHB spokeswoman told the Herald Fosters Construction remained active on site at the CBD building.

"Naturally we have prudently slowed up their work during the redesign and re-approval process but are ramping up resources dramatically now."