An aerial view of a concept design for the new Dunedin Hospital that is under construction. Photo / Supplied
The New Dunedin Hospital build has been plagued since 2016 by concerns over its governance and the potential for cost overruns.
A series of documents released on Thursday, which date back to the last National Government and cover the former Labour Government’s stewardship of the build, show officials raising persistent problems with the hospital’s governance, scope, and potential for cost overruns.
The current Government has decided to rescope the build to fit within the current $1.88 billion budget after it received advice that the hospital might not be able to be built as planned within the existing budget.
The documents show that as recently as 2021, the former Labour Government was being told to reconsider the scope of the hospital with a view to scaling it back to a more sustainable level.
Several of the documents are “gateway reviews”, a Treasury-led report that Governments have used since 2008 to monitor the delivery of major investments. There were five gateway reviews between 2016 and 2021, with most clustered in 2020 and 2021.
Overall, the documents show the project slowly becoming more unwieldy and unlikely to be completed on time and on budget. The early gateway reviews, under National, rated the project “amber” saying “[s]uccessful delivery appears feasible, but significant issues already exist requiring management attention. These appear resolvable at this stage and if addressed promptly, should not impact delivery or benefits realisation”.
The final reviews, under Labour, rated the project red/amber, warning “[s]uccessful delivery is in doubt, with major risks or issues apparent in a number of key areas. Prompt action is needed to address these, and whether resolution is feasible”.
The current Government alleges the documents show Labour took its eye off the ball because, despite several warnings about the feasibility of the project in 2021, no further gateway reviews were completed.
Infrastructure Minister Chris Bishop said the current Government was acting on some of these concerns.
“We expect advice from officials soon about the two options for completing the hospital – revising the inpatient building’s size and scope, or a staged development on the old site including a new clinical services building and a refurbished ward tower.
“As part of that process officials will be considering the appropriate size and scope of the hospital for its projected level of demand, and no doubt that will form part of their advice,” Bishop said.
Labour’s Health Infrastructure Spokeswoman Tracey McLellan rejected the idea Labour had taken its eye off the ball, saying the reviews were “a distraction from this Government simply refusing to deliver the hospital that Dunedin deserves”.
The final gateway review, delivered in December 2021, warned that economic chaos unleashed by the pandemic as well as the fact the project was located in Dunedin “put the successful delivery of the Project at significant risk unless the scope and scale is reconsidered or the approved budget revisited: ‘less hospital or more money’”.
Gateway reviews from June and November 2020 warned the new hospital would not deliver the benefits sought. In November 2020, officials warned in a gateway review there was “significant concern expressed about the appropriateness of the sizing and function of the hospital, to serve a population of 200,000″.
Another document, drafted by the then Minister of Health Andrew Little, pushed back on Treasury, saying inpatient discharges were expected to increase 28% in the period to 2042/43 and an aging population was expected to increase bed days by 40%.
But Treasury continued to raise concerns, hardening its position between 2020 and December 2021, when Treasury made the case for trimming back on the design of the hospital, saying that there was a case for arguing the solution proposed was “too big for the population served”, although this was contested.
The Treasury team said capital spending available for health infrastructure was “very constrained”, and asked ministers to consider whether the Dunedin hospital was the “highest and best use of $2b (excluding ongoing operating costs) for NZ and NZ Health?”
“Over-building in Dunedin will deprive other regions of much-needed funding. An unintended consequence of an overbuild of the NDH risks raising expectations of a similar blueprint being available to other communities,” officials said.
McLellan said Labour had tried to “value manage” the project when it was in Government by trimming back on parts of the build.
However, she said there was “only so much you can value management out of a hospital until the hospital stops performing in, so far as it stops providing the health services that are needed”.
A persistent concern, right from the first review in 2016 to the last in 2021 was the governance of the project, with Treasury arguing it was cumbersome and provided poor oversight of the complex project. The problem appears to have been the multiple layers of bureaucracy involved, which changed over time as the Southern District Health Board was merged into Health NZ as part of Labour’s health reforms. The build was also overseen by its own organisation, led by former Labour Minister Pete Hodgson.
“A high level of frustration was observed at what for many appears to be cumbersome, unclear and unworkable arrangements,” the gateway review said.
“The Review Team heard that governance and day-to-day project management decision-making had become blurred, as a result of the existing almost dysfunctional structure leading to time delays, missed opportunities and unnecessary cost,” it said.
People on the project also expressed “concern” to Treasury about “the churn at senior leadership levels” which they feared would “only be exacerbated” when the DHB was merged into Health NZ, which would then take responsibility for the project.
Hodgson, who has since stepped down from his role at the hospital said that he had been interviewed for the gateway reviews and that much of Treasury’s criticism of the governance structure had come from his feedback.
He said the “partnership” approach to delivering hospitals, established by the last National government, was not working. Under this approach, the Ministry of Health, Health NZ (or the local DHB) partnered with a new local governance entity to deliver the project.
“The criticism of the governance is hard to disagree with. We in Dunedin are amongst the most critical. A lot of the language is mine,” he said.
Hodgson said this created messy lines of accountability because the local entity, which he led, had no one to hold to account when things went wrong.
“The key thing with it is there is no straightforward accountability. The SPG [Southern Partnership Group – the local entity set up to deliver the hospital] didn’t have a chief executive to tell off,” he said.
He said there were benefits to the system in that it allowed the Government to draw on many “clever people” but these came with significant drawbacks, mainly a lack of accountability.
Hodgson said the Investment and Infrastructure Group within Health NZ should be beefed up as the Government’s unit for delivering hospital builds. He said it could be a “Waka Kotahi for hospitals”, by establishing a pipeline of work, building up in-house expertise, and progressively delivering it, much like the transport agency.
Bishop said the Government was “taking future governance extremely seriously”.
“It’s very obvious from the Gateway Reports and other advice that this has to be a top priority. Our Government is fully committed to finally delivering a much-needed new hospital for the people of Dunedin and the south,” he said.
Thomas Coughlan is Deputy Political Editor and covers politics from Parliament. He has worked for the Herald since 2021 and has worked in the press gallery since 2018.
