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