Delta #NUCLEAR EpicFail —Noble Subdivision : Incompetent Contracting

Election Year : The following opinion is offered in the public interest. -Eds

Received from Christchurch Driver [CD]
Fri, 26 Feb 2016 at 11:03 p.m. Last updated Sun, 28 Feb 2016 at 2:49 p.m.

Subdivision 101 : Don’t forget the STORMWATER DISCHARGE

Firstly, your correspondent apologises for the teenage habit of using caps in text for emphasis, but recently acquired knowledge some of which is shared below, defied conventional grammar.

An aside: your correspondent was overly fulsome in his praise of Delta CEO Grady Cameron’s transparency this week, when he revealed that Delta spent $3.3M “strengthening their position” vis-à-vis the $20M + debt owed to Delta on the Noble Subdivision at Yaldhurst, Christchurch.

It would have been a lot more credible had Mr Cameron revealed this TWO YEARS AGO, when as outlined in the National Business Review today, the deal was actually agreed.

Your correspondent now knows why the cone of silence has descended upon the Delta Directors, Grady Cameron, GCFO Grant McKenzie and Mayor Cull on this matter.

Mayor Cull has claimed this is just a bad debt. With all respect to the Mayor (that he is due) that statement is simply bovine excrement.

Mayor Cull on Morning Report sounded desperate when he claimed that Noble was not the same as the Jacks Point and Luggate debacles. In this he is correct —it was worse.

It is a tale of a perfect storm of contracting ineptitude as well as directorial torpor.

It is well covered by various posts and indeed the Auditor-General’s report that Delta had severe governance problems, due at least in part to a preponderance of accountants and numbers men. Warren Larsen in his 2012 report, politely said that this led to a culture of “excessive collegiality” (lovely phrase) at the board level. A more accurate description would be the Board acted as a band of serial head nodders.

Your correspondent can report that Delta executive management, and without doubt Dunedin City Council (DCC), knew that the project was in default in 2010 for millions, if not before.

Delta started work on the subdivision in 2009. Your correspondent understands that one arm of Delta / DCC loaned money to the contracting arm so that wages, suppliers and outside contractors could be paid.

This is important because there were it seems some parameters around the loan advances from the finance arm to the contracting arm.

Delta took around two years to complete the development. This is also very instructive because this correspondent’s information is that Delta left site several times because the finance arm would not advance money. Delta’s directors knew they had a dog by the tail in 2010.

So the critical question is – why was the project in default to a degree that caused Delta to leave the site several times between 2009-2011 ?

Readers might think : What was that deadbeat developer up to that caused this default ?

Sadly : the really, really dispiriting fact is that Delta themselves appear to have been the architect of the default that led us to this utter shambles through sheer contracting incompetence.

It seems that Delta provided budgets and estimates to the developers for the subdivision work. In return for one arm of Delta advancing money to pay the other arm, Delta got to do the subdivision work at prices somewhat over market rates.

The Developer relied on the Delta numbers for their budgets to their funders and to set section prices.

The elementary and fatal mistake that Delta look to have made is that they priced the work off incomplete drawings. This was only fatal because they did not know what any other experienced Canterbury civil contractors knew, which is that the STORMWATER DISCHARGE requirements which is controlled by the Canterbury Regional Council, were becoming ever more complex and were a very big cost.

Even if the exact design was not known, a competent contractor would have made some allowance or sought further information, particularly when they were not in a competitive situation. However without knowing the exact details, it looks like the Delta staff had their blinkers on, priced what they saw on the incomplete documents, and catastrophe resulted.

While Delta destructed millions of public funds on Noble, the directors slumbered on. They either had no clue about what questions to ask management to certify if things were under control at Noble, or knew and covered it up.

From what this correspondent can ascertain, Delta started work onsite before the Canterbury Regional Council Consent was issued, which is an issue in itself that bears scrutiny. For a short while earth was being moved, roads built and things were OK.

Then while work onsite is charging on….. BOOM !!!! a NUCLEAR budget explosion emerges when it is discovered that Stormwater discharge requirements will cost $6-7 MILLION, which is MORE than Delta’s ENTIRE contract. The Stormwater discharge had to be installed for all stages which meant there was no quick recovery for Delta at the end of Stage 1.

From there, the financial future of the project and Delta’s payday was doomed. This correspondent understands that the gross realisation of Stage 1 of the subdivision was $6M LESS than the COST of the work. Releasing more stages required more advanced funds from Delta, which appears to have happened, but other legal action then held up any release of sections to market.

By starting the subdivision and agreeing to be at risk (ie forgoing progress payments until sections were sold) Delta were doomed by their own actions. Once they started, they had to keep going until it was finished, otherwise they had no chance of ever seeing any money. Their budget mistakes made sure that the developers who already were spurned by the banks and dealing with 3rd tier lenders had no chance of additional funding.

Delta continued to pour money into the project and watch while problem after problem continued to bedevil the project.

The final indignity and rebuke to Delta is that the mortgagee sale documents apparently treat the land as a bare land development and do not even consider it a subdivision, ie NO value is attached to the $11.3M of Delta work, because the completed work wasn’t built to CCC specifications. Delta must share some blame for this also – it is another example of Delta’s inexperience in the Canterbury market.

This correspondent is determined to bring the directors to account and this will be the subject of future posts.

This correspondent acknowledges that he is seeing through a glass darkly as it were in relation to the precise facts. Some figures and details may not be quite right, but the overall picture portrayed we can be confident of. Mr Cameron is urged to release the full facts about Noble and ignore the ineffectual Mr Crombie before more unpleasant facts about Noble and other Delta matters emerge.

It is clear that the past and present directors (with perhaps one exception) have erected a wall of silence to keep the Public and Councillors in the dark about the massive destruction of public funds they have presided over. They are unfit stewards.

It is now this correspondent’s opinion that the Auditor-General’s investigation of Delta is essential.

Related Posts and Comments:
● 25.2.16 Delta #EpicFail: Mayor Cull —Forced Sale Fundamentals 101
● 24.2.16 Delta #EpicFail —Noble Subdivision: Cameron, Crombie & McKenzie
● 23.2.16 DCC: DCHL half year result to 31 December 2015
19.2.16 Delta: Update on Yaldhurst subdivision debt recovery
15.2.16 Delta / DCHL not broadcasting position on subdivision mortgagee tender
30.1.16 DCC Rates: LOCAL CONTEXT not Stats —Delta and Hippopotamuses
● 29.1.16 Delta #EpicFail —Yaldhurst Subdivision ● Some forensics
● 21.1.16 Delta #EpicFail —Yaldhurst Subdivision
21.1.16 DCC LTAP 2016/17 budget discussion #ultrahelpfulhints
10.1.16 Infrastructure ‘open to facile misinterpretation’…. or local ignore
15.12.15 Noble property subdivision aka Yaldhurst Village | Mortgagee Tender
21.9.15 DCC: Not shite (?) hitting the fan but DVL
20.7.15 Noble property subdivision —DELTA #LGOIMA
1.4.15 Christchurch subdivisions: Heat gone?
24.3.15 Noble property subdivision —DELTA
23.3.15 Noble property subdivision: “Denials suggest that we have not learned.”
17.3.15 DCC —Delta, Jacks Point Luggate II…. Noble property subdivision

● 14.5.14 (via DCC website) Larsen Report February 2012
A recent governance review of the Dunedin City Council companies was conducted by Warren Larsen.

● 20.3.14 Delta: Report from Office of the Auditor-General
Inquiry into property investments by Delta Utility Services Limited at Luggate and Jacks Point

█ For more, enter the term *delta* in the search box at right.

Posted by Elizabeth Kerr

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14 Comments

Filed under Business, Construction, DCC, DCHL, DCTL, Delta, Democracy, Dunedin, Economics, Geography, Infrastructure, Media, Name, New Zealand, OAG, People, Politics, Project management, Property, Resource management, Site, Town planning, Travesty, Urban design

14 responses to “Delta #NUCLEAR EpicFail —Noble Subdivision : Incompetent Contracting

  1. Diane Yeldon

    Fascinating reading. I suspect for far too long that directorships of DCC council controlled companies have been considered no more than high-paying jobs for the boys (and at least one girl) and that all was required to collect these large amounts of money was to show up, sit at the meeting table and pretend to be awake. Prior experience as a Dunedin City Councillor no doubt being excellent practice for the role.

  2. Gurglars

    Accountability:
    All of those overpaid managers and estimating staff
    All of the directors
    Crombie
    Cull
    Head of finance at the DCC

    All should resign or be pushed.

    Anyone who has been involved in this turgid mess and not stopped it in its tracks is guilty of fraud on the ratepayers.

  3. Calvin Oaten

    If what CD says is correct in as much as this disaster has been known since 2010, FIVE YEARS! Then the Mayor, directors, Delta management, have all been simply kicking the can down the road in denial. Meanwhile the financial hole has progressively deepened, to now seemingly be in excess of $20million. That, for an already financially stretched city, could be a break point which might just open the gates to horrific costs to arrive on the ratepayers’ doorstep. If no decisive action is taken immediately by the mayor, CEO, GCFO and directors, to stem the damage (forget about Delta management, the prime causers) then there ought to be a full inquiry and some serious jail time could be a result. Incompetence and dereliction of duty is the most charitable description one could offer.

  4. russandbev

    First off Gurglars is that the word “accountability” is as foreign a word as “responsibility” to Cull and his Council.

    What is known is that this shambles up in Yaldhurst has been going on for a very long time and we now know more of the reasons why it is a shambles than we did before – no thanks to those that have had a responsibility to report.

    What is also good to be reminded of is that there is supposed to be an environment of “no surprises” within the DCC and its trading companies and that one of the tools to ensure this is the regular briefing meetings involving the Mayor, Crombie etc. Now there are only two possibilities that can exist. One is that these meetings never ever briefed Cull, or they did and that he subsequently tried to downplay the content of the briefing.

    Either way is bad, but whichever it was, the end effect is the same. Cull cut off all discussion at a full Council meeting when details were being requested by a couple of Councillors. Why? All tracks lead to the belief that Cull knew exactly what was going on and what the likely end result will be. He does not want the general public to know that he has been asleep at the wheel – he wants to get another 3 years sucking at the back teat.

    And another question. Exactly what is the role of the ODT in this? Yes, there have been some stories, but they have been limited and readers could be excused if they thought that just enough has been published to show that they haven’t totally ignored the story. It has been the NBR which have published most of the guts of the story and how many Dunedin residents and ratepayers read the NBR on a regular basis? Is the ODT protecting Cull?

    I really hope that CD follows up on his/her actions when accountability fails to materialise and furthermore that the OAG once again gets involved with hopefully more than a damp bus ticket at hand.

  5. Diane Yeldon

    The mayor has a leadership role on the council. And the council is the ‘board of governors’ of the DCC, including the council controlled companies which the council has ultimate responsibility for. So the mayoralty is where the buck stops. Mayor Cull’s verbal directions to McKenzie and Crombie effectively not to answer councillors’ questions (“You don’t have to answer that.”) have all the markings of his involvement in a “Delta cover up”. Following a Citifleet cover up. Following a Stadium cover up. Maybe, in the most charitable view, Mayor Cull was hoping that things would somehow get better and not to unnecessarily worry the ratepayers. And no point in digging up the past. But the way things have turned out, with the hole just continually getting deeper, reinforces my belief that honesty is the best policy including about bad news and as soon as possible. (Council manager, Ruth Stokes, did this regarding the South Dunedin cycleway faux pas and good on her.) The thing that really amazes me is Cull’s intention to stand for the mayoralty again. Most people in paid employment with a similar dismal record would surely resign out of shame. Before they were fired.

    • Lyndon Weggery

      Diane -I too am amazed the Mayor is standing again because with his remarks about “managed retreat” in SD there are no votes to be gained there.

  6. Hype O'Thermia

    Overheard in a paddock not too far from here:
    “Oh Jerseybelle! Don’t believe anything he moos, he’s all cullshit.”

  7. Hype O'Thermia

    This is bizarre: “…they did not know what any other experienced Canterbury civil contractor knew, which is that the STORMWATER DISCHARGE requirements controlled by the Canterbury Regional Council, were becoming ever more complex and were a very big cost”.
    Even before the quakes, green and sustainability concerns were bringing changes to requirements for taking and disposing of water (both storm and grey) not just in Canterbury but all over NZ as people became more aware of long term effects of cheap’n’cheerful Grabbit & Run practices. It was something you’d need to be up to date with, not relying on what was OK back in the day.

  8. photonz

    And Cull says Delta has done nothing wrong – it’s merely a case of a bad debt.

    Either he’s utterly incompetent, or telling outright porkies.

    Or a third option. Both.

    • Elizabeth

      In case Mayor and Councillors weren’t paying attention, CD’s post via link and excerpts was sent to all in the lunch hour – including the DCC chief executive and the GCFO, Tim Hunter, Chris Morris and the ODT Editor. And some others.

      • photonz

        The time it takes the ODT to get to the bottom of whatever is the latest DCC scandal/fiasco/stuff-up (if it even bothers at all) makes it look like it’s trying to speed up it’s own inevitable demise.

        At best, the ODT are going to be three days behind What if? Dunedin about the Delta stuff-up.

        • Elizabeth

          ODT doesn’t do investigative journalism – no budget. Whereas What if? has the agency of the motivated, the humoured or the trounced calling by, increasingly.

  9. Elizabeth

    Received. [perfectly topical]
    Sat, 27 Feb 2016 at 3:28 p.m.

    In the wake of the Stonewood Homes collapse directors are being reminded that they face tough financial penalties if they fail to meet their legal responsibilities.

    Directors were liable for decisions they made during their tenure and could still be held to account even after resigning.

    ### Stuff.co.nz Last updated 18:17, February 26 2016
    Stonewood Homes collapse is a wake up call for all directors
    By Amanda Cropp
    ….Gerard Dale, a corporate law specialist with Christchurch law firm Lane Neave, said company directors came under close scrutiny when things went wrong, and when a company faced insolvency, they were at greatest risk of personal liability.

    “There are significant penalties for directors under the Companies Act and they could be liable for a fine of up to $200,000 or up to five years imprisonment.”

    On Monday Stonewood​ Homes New Zealand – the master franchisor of the Stonewood Group – and sister companies Stonewood Homes and Sterling Homes (Christchurch) were put into receivership owing about $15 million to unsecured creditors. Receivers are still calculating the outstanding debt to secured creditors.

    Under the Companies Act Dale said directors were not meant to allow a company to take on extra obligations it might not be able to meet, and a two part insolvency test applied.

    “[It] shows whether the company is able to pay its debts as they become due in the normal course of business, and that the value of the company’s assets is greater than its liabilities, including contingent liabilities.”

    Dale said directors may also be personally liable to creditors under the Fair Trading Act for misleading and deceptive conduct if they knowingly misled creditors about the solvency of the company, and its ability to pay its debts.

    “Creditors may be able to take action against directors personally if they were wrongly reassured that the company was in a stronger financial position than it was. Directors must act in the best interests of the company. They can take prudent business risks but they cannot make rash business decisions that may put a creditor at risk.”
    Read more

    More on Stonewood Homes at https://dunedinstadium.wordpress.com/2015/04/01/christchurch-subdivisions-heat-gone/#comment-70758

  10. pb

    Ship, meet tip of iceberg.

    Unfortunately a modern political operatives main skill is to hide mistakes, not learn from them. They really need a code of honour or something. A toned down Samurai tradition of harakiri. It’s sad to think Dunners has a soft culture of corruption in the wannabe ruling class.

    Will be curious to see if this goes anywhere.

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