Stadium: Carpentry contract awarded, with a slight glitch!

### ODT Online Thu, 3 Jun 2010
Row over stadium contract
By David Loughrey
The carpentry contract for the Forsyth Barr Stadium has been let without the knowledge of the Carisbrook Stadium Trust, bypassing an agreed process between main contractor Hawkins Construction and the trust. Trust chairman Malcolm Farry confirmed yesterday the contract had been let to Auckland company Wallace Construction, after telling the Otago Daily Times late last week, and again earlier yesterday, he was unaware of the contract.

“Due process has to be followed. Most of the rules have been broken.”
-Malcolm Farry

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Post by Elizabeth Kerr

33 Comments

Filed under Architecture, Construction, Economics, Geography, People, Politics, Project management, Site

33 responses to “Stadium: Carpentry contract awarded, with a slight glitch!

  1. janet

    Now that the contract has been awarded it’s too late – the horse has bolted. And now it’s on the loose. It’s reassuring to know that due process was followed! What now – a slap over the wrist with a wet bus ticket for the main contractor?
    Reminds me of the due process followed when Mayor Chin, while asleep at the wheel, signed a 999 year agreement with Trustpower for the princely sum of $1 per annum.

  2. Russell Garbutt

    Are we missing something here?

    If there is an agreed process and this has not been followed, then surely Hawkins have acted without authority and the contract is null and void.

    Unless of course there is something else going on here with protestations just being part of another process.

    Some of the knowledgable people that have contributed in the past on this sort of matter may know what the value of a contract is that has been let without authority.

  3. Anonymous

    If you know the industry, then you will know the approach taken by some Dunedin-based contractors was destined to run smack up against the hardball played by Hawkins in a maximum price situation.

    EVERYBODY has been screwed down to the absolute minimum. There is no room for overrun. You cannot, for example, go in with a low bid in one area with a view to making up in another.

  4. Phil

    I’m glad that local contractors have stuck to their guns over this contract. The work costs what it costs. It was always a worry when the head contract inclusions changed, but the GMP value supposedly didn’t. That extra money had to be found by the head contractor from somewhere.

    As we discussed earlier, screwing decent subcontractors at the start of a contract destroys any goodwill for the duration of the contract. Claims for variation work costs, and there will be many on a contract which was not fully designed at the time of tendering, will be coming hard and fast. No one is going to donate one nail more than they have been paid for. If subcontractors can’t make their required profit margin from the main contract, they will recover it through extra work. The bottom line will end up being the same.

    If a contract has been awarded illegally, then it can be revoked. The successful subcontractor can claim for costs, loss of profit, etc from the head contractor, as the subcontractor entered into the agreement in good faith. But that’s the Head Contractor’s problem, not the client’s.

    If I have read the ODT report correctly, then the latest carpentry subcontract has been a negotiated contract, and not an invited or public tender process as it was initially. Negotiated contracts are usually only sought for specialty work (such as the structural steel contract), or as a result of a “working relationship”. Obviously carpentry is not a specialty subtrade.

    DCC is no stranger to negotiated contracts based on relationships. Often it’s done to ensure that all local contractors get a fair share of public works, and to ensure that sufficient resources are available for all the contracts in progress. Hawkins’ motives, in this case, appear a little less clear.

    I think that we might have been a little closer to the mark than we realised, yesterday. My view now is that the original prices submitted by the local contractors were fair and reasonable for the work required, but didn’t fit inside the budget. The budget was wrong, but Hawkins were stuck with meeting that figure. So they entered into a loss making agreement with an allied subcontractor, knowing that they and the subcontractor would recover that loss on future projects together. Something the local contractors would not have been able to do.

    Some unsuspecting client up North is going to end up paying for part of the cost of building the stadium down here.

    Hawkins have made a mistake here, but the CST also have a responsibility in trying to force through a stadium at an unrealistic price. Rather than helping the local economy, it may have damaged it.

    • Elizabeth

      It appears Mr Farry has issued a statement about the carpentry contract tonight.

      In essence: Correct procedure followed, miscommunication problem.

  5. Calvin Oaten

    Phil, a good summation. As it is relatively early in the project, and if the GMP is stressing already, then I guess we can look forward to a lot more ‘angst’ before completion. Who would have thought it? Who indeed?

  6. Phil

    Talking about banging one’s head against a wall, Elizabeth. Is Mr Farry telling us now that he gave a full press statement to the ODT yesterday, without picking up the telephone and asking anyone about the situation first?

    To refresh memories from way back in the distant past (24 hours ago): “…just been made aware in the last half-hour due process has not been followed”. ODT

    Now it seems that due process HAS been followed?

    That’s the sort of question you think would have a simple Yes/No answer. And something very easily verified before offering yourself up to the tabloids. After all, there’s been about 20 subcontracts signed prior to this one. You’d kind of know what the process looked like by now.

    This from the CST to the ODT last year: The “main contractor, Hawkins Construction, was responsible for securing tenders and prices from subcontractors and suppliers. This would be undertaken on an open-book basis. Hawkins would provide a recommendation to the trust for each subcontract, which the trust would assess, along with independent advice. Subject to being satisfied with the recommendation, the trust wouuld approve the subcontractor’s appointment, and Hawkins would confirm the subcontract.” ODT

    Nothing gets signed until CST instructs Hawkins to sign it. Seems kind of tough to get a miscommunication out of that requirement.

    {ODT links added -Eds}

    • Elizabeth

      If we’re lucky, media will produce the ‘pure’ unabridged statement tomorrow, Phil. Can’t wait.
      Love your treatise here. Sharp!!!

  7. Russell Garbutt

    So, where are the clarifications from Farry, Chin et al?

    As usual I suspect, they will put their heads down and wait until the ODT goes away. That is the normal modus operandi. If you don’t say anything then it is hard to criticise it. I don’t see Mr Lund saying much either – which is a little different to the stance that was taken at the South Dunedin public meeting.

    But I come back to my point made earlier. If there was an agreed contracted process to go through before awarding a subcontract and this was not followed, then surely this makes any contracts entered into null and void. Seems simple?

  8. Phil

    One of the binding conditions of any contract is that it must be lawful. One could argue that Hawkins were offering a service that they were not authorised to do. Like engaging a painter to paint your neighbour’s house. And it does sound like it is a breach of the contract which exists between Hawkins and CST. CST could refuse to accept the subcontract. Which then creates a problem for Hawkins who have now engaged a subcontractor with no work. So the fight is between them.

    The immediate problem is, of course, that a carpentry contract is needed. And any legal challenge that Wallace Construction may raise as a result of the cancellation of their once in a lifetime cut price bargain basement price deal would result in a time delay to the project and in additional costs. Something the project cannot afford.

    If only someone from CST would say that they approved the subcontract. Then the work could continue. CST is in trouble with Council, but we’re all old mates there and it doesn’t slow down progress or increase costs.

    If only.

    But wait, what’s this? Suddenly, after 2 days of apparently unforseen public outrage, someone from CST has a startling recovery of memory and DOES remember approving the subcontract. They just forgot to tell everyone else in the CST about it.

    As you do.

    Miscommunication.

    Phew, that was close.

  9. Russell Garbutt

    And of course the CST is a totally private Trust who are not answerable to anyone really. They are acting as an agent for the DCC – that has been stated before – but the DCC, as you say, are not exactly ones to mention that conditions have not been met, agreements breached etc etc.

    There are a lot of questions any decent investigative journalist could ask, but that presupposes that there are some around.

    I wonder just who it was within the CST would suddenly remember what they had done and hadn’t told Farry?

  10. Calvin Oaten

    This is what inevitably happens when you have a culture of arranging facts to fit fictions. Right from the start the stadium concept has been built on the classic formulae as outlined in the “Machiavellian Projects” by Bent Flyvbjerg. So don’t expect ‘fessing up’ by anyone to inconsistencies anytime soon. The interesting part will be watching the machinations from now on. After all, the project is only half way through. A real horror story for election year. Loving every minute. Pity about the costs to the ratepayers though.

  11. gary hughes

    Yes that’s right, election in four months and I just wonder if the FBS (who have already reminded me a number of times that thay are not building this stadium) will come out and admitt this thing will not be ready for the world cup.
    To think they may be quite happy to not only mislead but deceive the voting public very well knowing there is no chance, they have already stated on their website “we are not building the stadium for the world cup”. Sounds about right, Dunedin’s single biggest project is finished a couple of months past when it could have been showcased before the world.
    Calvin is right there is a lot more to come, I just hope the ODT will start publishing facts instead of the spin that comes from this bunch of thieves.

  12. Anonymous

    “Hey!”
    “Yep!”
    “That carpentry contract that didn’t get approved by us?”
    “Not possible.”
    “Huh?”
    “Not possible for it not to have been approved by us.”
    “So it must have been approved by us?”
    “Yep!”
    “Excellent.”

  13. Russell Garbutt

    I am reminded so much of Catch 22 it’s just not true.

    And just if we do forget that it is the Otago Rugby Football Union that are in the middle of the genesis of this mess, there are some interesting postings on the Facebook site The DCC has lost the plot. The 2009 ORFU finances have just been released and they cover the valuations of Carisbrook as well as the financial performance of the Union. Remember, the anchor tenant that we were building the stadium for?

    Suffice to say that it is worth reading the report directly from the Companies Office website, and then reading some of the insights on the FB site.

    One day there will be a book written on this whole sad sorry mess, but my picking is that a few people who will have had the shredders working well will also develop sad cases of amnesia.

    {Links added -Eds}

  14. wirehunt

    Russell, we shouldn’t have to wait that long, it should all come out in an enquiry….

  15. Russell Garbutt

    Remember on this site where there was a lot of controversy over the amount of money paid for by the DCC for the Carisbrook purchase?

    Cr Walls was particularly vocal in his role as Finance Chair and reckoned that the ODT had got it wrong in their breakdown of $6m for the stadium and carpark and $1m for the residential properties. He insisted that the package was $7m.

    Seems like the ORFU are saying that they got $6,078,686 for the sale, they repaid $6.9m in loans but they have had to borrow another $1.2m from the BNZ to do this. Their valuations for Carisbrook were less than $0.5m for the land, and $10m or so for the stands and hospitality suites and the like.

    Now, if you knew that a new rugby stadium was being built for the ORFU by the DCC with some help from the ORC just across town, what valuation would you put on the old Carisbrook? Seems like the valuation that the DCC got to support their purchase was amazing.

    If the whole process was a lot more transparent then there wouldn’t be doubt and suspicion in so many people’s minds, but transparency has not exactly been the hallmark of this Council has it?

    What Harland and pro-stadium Councillors have stated quite clearly is that it is vital that the ORFU is in a sound financial position so that it can fund the operational costs of the new stadium but the published accounts don’t exactly give rise to any confidence that this is the case.

    If there are any really good accountants that can pass their eyes over the ORFU accounts they may be able to provide a better judgement on the position of the ORFU but it does make worrying reading when the auditors say in effect that in order to conduct future operations and meet debt as it falls due then they have to reduce costs, increase income and secure future loans.

  16. James

    Their valuations for Carisbrook were less than $0.5m for the land, and $10m or so for the stands and hospitality suites and the like.

    These aren’t actual valuations. They represent cost at acquisition less depreciation. Land is not depreciated, so the value represents how much they paid for it. As they’ve presumably owned Carisbrook for a long time, this means that the $416,000 is probably mostly money paid for the houses.
    This contrasts with the DCC’s accounting policy where they do actually revalue, to actual value, their assets regularly (eg their forests).

  17. Anonymous

    It would also appear that the revaluations of city assets (City Forestry being the case in point) are done when they have appreciated to the point that they can be used to increase the debt leverage.

  18. James

    Anonymous — Yes, that’s one of Calvin’s favourite points. In reality, organisations have to set an accounting policy and stick with it. In the case of City Forestry, that means they revalue the forests regularly, and while they have mostly gone up, they could also go down. As far as I understand it, they can’t only choose to revalue only when it works in their favour. Luckily for the city, log prices seem to be on the up. What can we borrow to fund next ;-)

  19. Calvin Oaten

    James: they will think of something. Even if it is only to fund cost increases on the stadium. They have never shown a lack of resourcefulness.

  20. James

    Calvin — I was joking, of course, but the extent to which that becomes a reality will be based on the incoming council.

  21. Russell Garbutt

    James, the ORFU valued their capital improvements to the land at over $10m. Would this figure not have been used to borrow against?

    Was this a realistic figure? Would a prudent lender look hard at the big picture and determine what a realistic valuation might be, knowing that the decision to build the new stadium had been taken? I can’t see a lot of value in buildings and stands round a redundant stadium – can you? Yet that seems as though what has happened, as both the BNZ and the DCC loaned the ORFU a great deal of money against the “value” of some redundant grandstands and some hospitality suites.

    It is public knowledge that DTZ – the company that provided the valuation for the DCC to justify its purchase of these ORFU assets stated that the hospitality boxes and the like could be used as offices.

    Now you and I can judge whether that sort of logic actually makes any sense – does this man know something that we don’t? Could it be for example that he thought that the Otago Regional Council could shift into Carisbrook and save the ratepayers the cost of a new ORC building?

  22. James

    James, the ORFU valued their capital improvements to the land at over $10m. Would this figure not have been used to borrow against?

    Simple answer. No. The improvements were valued at what it cost to build them, less depreciation. This is important for writing accounts, but no connection with any estimate of what their value is in the usual sense.

    If you care to read the ORFU accounts, you’ll find that this ‘value’ is ascribed to them as a ‘going concern’. Further, it is clearly stated that if the concern is no longer ‘going’, then that value has no basis in reality. Thus, the value of the land is probably much higher, but the value of the improvements may be negative (in that they might have to removed at some cost).

    as both the BNZ and the DCC loaned the ORFU a great deal of money against the “value” of some redundant grandstands and some hospitality suites.

    Both of these loans date back to 1999 or earlier, at which point Carisbrook was far more of a going concern. This is, to quote Keynes, a case of “If you owe your bank a hundred pounds, you have a problem. But if you owe a million, it has”. Thus, with the appearance of the new stadium proposal, I’d imagine that the BNZ might have had a little cause to sweat.

  23. Calvin Oaten

    The BNZ’s sweated brow was well and truly toweled dry by the DCC purchase of the ORFU’s “asset” for $7million.

  24. James

    Somewhat. ORFU still have a loan facility with BNZ to $1.2m, at the sweet rate of 4.75%.

  25. Russell Garbutt

    James, despite reading the ORFU Annual returns, I am still mystified by the gap of about $1m that is betweeen what the ORFU is down as receiving from the sale, and the sum that the DCC say that they paid. ie the difference between $6m and $7m.

    Is there a simple explanation for this gap in your view?

  26. James

    Hi Russell. Somewhat simple explanation, I think. The council apparently paid $6m for Carisbrook and $1m for the houses on Burns St. If the houses were owned by a different entity rather than ORFU, then they would not show up in ORFU statements. Now that the sale has proceeded, it would cost $4.50 to find out from QV who owned the houses prior to sale, which would provide a definitive answer.

  27. Russell Garbutt

    Hi James

    I think you followed the extensive discussions with Cr Walls on this matter on this site. That link you kindly provided reported that the DCC paid $6m to the ORFU for the ground and $1m for the houses on Burns Street. Richard Walls made it very clear that this was not the case and he refuted this report very strongly and said that it was a $7m package – as I said earlier in this thread.

    Maybe someone will spend the $4.50 and search the titles on the 9 properties concerned and bring some clarity, but wouldn’t it be so much better if the process was much more transparent – or as some would say, more honest?

  28. James

    I either missed that, or didn’t find it very interesting. Another possibility would be that the council may have bought most things for $6m, with another $1m to come for some remaining bits when ORFU vacates the ground. For remaining fixed chattels perhaps. Whatever the explanation is, I’m not too taxed about it.

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