ul?lxilz?i . HEALTH Capital Investment Committee Committee Paper Item 3: Cost Increase for Counties Manukau DHB Re-clad of Scott Building Recommendations The Capital Investment Committee (CIC) is asked to: 1. Note the attached request from for $11.5 million additional Yes/No funds to complete the re-cladding of the Scott Building (of which $2.5 million is contingent funding for potential sewage works). 2. Recommend the increase in project budget for the Scott Re-claddin Ye $11.5 million (bringing the total budget to $24.5 m?ie? - E50) 3. Note that the source of funding (DHB or Healt elo the increase in project costs cHug ital and Operating, NHB Report 1. requests approval . clinical building (the Sc t' million). knowledge of the building and a proposed methodology to minimise impacts from the remediation occurring in a live environment. 5. CIC endorsed the business case but requested that a. undertake a peer review of the quantity surveyor report due to the non-competitive procurement process followed 6. The business case was approved by the Ministers of Health and Finance, subject to above two conditions. 7. The above two conditions have now been met. Proposal 8. Negotiations with Hawkins have continued subsequent to the above approval, and the proposed contract between the parties is at ?final draft? stage. As a consequence of the further investigations and negotiations the costs have increased by $11.5 million as follows: Page 1 of 2 HEALTH Capital investment Committee Committee Paper a. Hawkins costs have increased $4.406 million (to $18231 million), reflecting factors including an extended timeframe, additional timber provisioning due to further deterioration, and cost pressures in the Auckland construction market. b. costs have increased by $4.588 million (including a significant increase in contingency for the Scott re-clad) c. seeks $2.5 million as contingent funding for potential sewerage works (the extent of which will not be fully known until the Scott cladding is removed). 9. Rider Levett Bucknall (RLB) have reviewed the proposed Hawkins? costs and have advised that they are appropriate. Resource Co-ordination Partnership (RCP) have received the overall project costings, and have confirmed these are appropriate. Both figs have recommended that enter into the contract with Hawkins at the price. rease is Conclusion and recommendation 10. Based on the RLB and RCP reviews of costing, justified. 11. There are limited contractor options a contract with the Hawkins entity is th 0 12. 13. 14. Page 2 of 2 nilklw': li'i HEALTH Capital Investment Committee Committee Paper Item 3b: Counties Manukau DHB Re-clad of Scott Building (Note: This is a July 2017 CIC Paper - for reference only) Recommendations The Capital investment Committee (CIC) is asked to: Report Building) at a total cost of $16 million. Background esti ation 1. Note the attached business case submitted by for the re- Yes No cladding of the Scott Building. 2. Endorse the project, with a total budget of $16 million (of which $13ggn Yes No uested as an in'ection of Crown 'original build was outside the statutor timeframes, negotiations uild contractor (Hawkins). building competency issues. Mhairi ital and HB I (the Scott requests approval of a project for the ?ow a? acute medicine, surgical and coronary .-. I and renal dialysis day unit. . 0 2006. In April 2012 issues with the building of exterior cladding fell from the building to an entry -. widespread systemic cladding failure with resulting and damage. An interim measure of securing the panels 8 Is one (below) identifies the high level options considered by for addressing the Table One: Short List of Options Considered Option Capital Whole of life cost Comment ??3t (25 years) Status quo Nil $47m including Not feasible as would result in further cladding degradation, risk (no repairs) maintenance) building compliance certification, exacerbate potential health and safety risks and increase future costs (requiring a full rebuild within 5?10 years). Partial $11m $28.9m Would be for affected areas only. Life of cladding is 10+ years, recladding and requires 5 year regular maintenance. Would not provide certainty of the weather-tightness of the building. Would not address underlying issues. Full $16m $30.7 Preferred option. Life of cladding 25+ years, minimal recladding maintenance required over life of product. Replacement $116m $203.7m Financially unaffordable. Would significantly disrupt clinical Page 1 of 3 HEALTH Capital investment Committee Committee Paper of building activities (if built in current location) and patient flow (if re-built in a different location on the Middlemore site). 6. The preferred option involves re-cladding of the entire building with High Pressure Laminate rainshield and replacing all affected windows. The total capital cost of this option is $16 million. reiuests a Crown equity injection of $13 million, 7. The project will result in an increased operating cost of $1.2 million per annum, including capital costs and depreciation. advises this has been allowed for within their financial projections. Rationale for preferred option 8. evaluated against critical success factors including the impac eliver durability, construction considerations and affordability. ve a pr erg) option provides the best combination of price and performanc ation wil ?g over a two year period, due to the need for the building to ration ug r. construction work. Procurement 9. did not undertake a competitive . exg to engage a on Hawkins? knowledge of Hawkins entity to complete the remedia . the building (which is expected to - in facade). also believ contra .. - ely to be attracted to the relatively current cladding are historic (dating from the oice under a design-build contract. note low value, but highly co pany, that has in recent times successfully delivered 10. note thatt - early 20008) a - and has invested (at its cost) to develop a staged clinical services. that Hawkins Assuran - and 11. Due fthe project there is a financial risk of increased cost. For example: &h is a risk that the extent of water ingress and impact on underlying structure is greater than anticipated. b. any impact on clinical service provision may require the construction process being slowed, leading to increased cost. 12. has mitigated risks by measures including: a. Procuring an independent review of the extent of remediation requirements b. Having project costs prepared by an independent quantity surveyor c. Conservative costing and allowance for provisional sums. 13. will ensure that contracts are reviewed by a specialist construction lawyer, and they will be seeking an appropriate bond for the work performance of Hawkins under the construction contract. 14. is confident that the cladding will mean that the design issues of the Scott Building will not be replicated because: a. the product has a proven history (including its use on the K0 Awatea project), and has a 10 year warranty. b. the rain shield design effectively has two lines of weather proofing separated by a cav?y. 0. its installation will be closely monitored by a clear of works 15. has recently reconfirmed the fire safety of the proposed product and installation. Page 2 of 3 halalkfizi i'Il mm Capital Investment Committee Committee Paper Sign off process 16. The acting Chief Executive of has been actively involved in the development of the project. 17. The project was signed off by the Regional Capital Group at the meeting of 12 May 2017, and by the Regional Governance Group at their meeting dated 1 June 2017. Conclusion and Recommendation 18. received an investor Confidence Rating of in 2016 (although see Director?s report regarding the DHB self-reporting instances where they failed to comply with corporate centre requirements relating to the thresholds for business case development). 19. Officials believe that has sufficient capability to progress this co in an appropriate way. We recommend that you endorse their request for Page 3 of 3 5 COMMERCIAL IN CONFIDENCE A A HEALTH Capital Investment Committee Scott Building Re-Clad Business Case Supplementary Application for Additional Funding Recommendation: It is recommended that the Capital Investment Committee: Receive the Supplementary Application to Investment Ministers for funding approval. Approve submission of the Supplementary Application to Investment Ministers for fu proval. A Prepared and submitted by: Chester Buller, Manager Capital Works and John Hawwegal/Advi r, @d by Margaret White, Chief Financial Officer 1.0 Executive Summary This paper provides the Capital lnvestm it ee (C C) ate pertaining to the Re- Cladding of the Scott Building at A. a spital .o 1 ar on the status of the contract with Hawkins 2017 .. carry 0 his paper also seeks to confirm an $8.994m extension tot .- f? . ital I . - mittee and Ministerial approval for $13m app I for associated potential sewage works. This In! a funding, together ing proposal for this project previously approved by 2.0 nd roposal was made, CM Health has continued to work with Hawkins to conclude 6' iding Re-Cladding Works Contract including the last outstanding item, pricing You will see below that this exercise is effectively complete with the Contract at a ?last? 'final" draft stage. While the focus of this paper is in obtaining the necessary additional funding for the project, it is re-iterating some of the background leading up to this point (this background is more fully set out in the Original Proposal). Hawkins Construction North Island Limited designed and constructed Stages 1 2 (levels G, 1, 2 3) of the Scott Building for CM Health over a two year period: 2001 2002; and levels 4 in 2005- 2006 (build only). Some 12 years after the Scott Building?s construction, a part of the Building?s cladding fell off highlighting defects in the construction work. By that time two significant events had occurred. First, . . Secondly, CM Health and a legal successor to the original Hawkins entity had, after many years of discussion and joint work, identified a unique methodology which could enable the cladding remedial work to occur. This works CM Health Scott Building Re?Cladding Works Contract Project Status Update Page 1 COMMERCIAL IN CONFIDENCE methodology (?Works Methodology? or "Methodology") is untried in New Zealand but has been tested in a limited way. The Works Methodology is intended to enable the Scott Building to continue to function as an acute hospital while the remedial work occurs. The Methodology is a central feature to the Contract. Many of the Contract?s features directly or indirectly reflect the Methodology. The nature and extent of the works contemplated by the Contract and supported and facilitated by the Methodology carry a level of risk. The nature of the works, and the work?s defined scope being based on a sampling approach to potential cladding failure related damage, means some of the works features are not known at the level typically expected in a construction arrangement. Aspects of Contract pricing reflect this risk where required but are fixed in other areas where possible. The evident risks involved here have been mitigated as far as practicable Contract (an through the Methodology). While attracting a not insignificant level of ris very necessary and must proceed to ensure the Scott Building?s integr' sal. 3.0b This brings us up to date largely to the point of the Original 3.0 Changes to the Original Proposal With one or two exceptions, - Risk portion of the Original . as changed in that area though, is the management of cost - - to manage this risk. The one substantial change to the Ori - hat Proposal under Cost Escalation. 4.0 Status of Contract CM Health Scott Building Re-Cladding Works Contract Project Status Update Page 2 COMMERCIAL IN CONFIDENCE 5.0 CM Health Scott Building Re-Cladding Works Contract Project Status Update CM Health has progressed the Contract to the point where CM Health and Hawkins are agreed in principle on all the essential features of the Contract. The Contract is effectively at a ?last? or ?final? draft stage. The essential features of the Scott Building Re-Cladding arrangement, and which underpin and are reflected in the Contract, are set out in Appendix 1. Appendix 1 is a brief summary from CM Health?s Legal Advisors who have been involved throughout the Contract?s development. The memorandum set out in Appendix 1 is intended to briefly describe the Contract?s key features, and provide you with some comfort that appropriate professional advice has been obtained throughout to ensure a strong legal position for CM Health. Project Costs . d, the significant delay to remediate means that there is a risk erneath requires remedial work in excess of the conting . he vestig ns su? on about one of two aspects of the PVC piping. The full extent of any 5 until the cladding is removed from various parts of the Scott Building. The i above makes no provision for any necessary sewerage works fix in the Scott us will $8.9 ting that the sewage works may be an urgent requirement, the scope of costs for this are yet to be confirmed, however initial estimates reach $2.5m (yet to be tested by cost consultants). And a request for this funding is also made. Please refer to Appendix 2 for full cost details. Acknowledging the absence of an open procurement process, and as requested under the original funding approval we have commissioned Rider Levett Bucknall (RLB) to complete a quantity surveyor report to ensure that the negotiated costings are robust. Additionally, we have sought advice from Resource Co?ordination Partnership (RCP) regarding the overall project costings. Both firms confirm our recommendation to confirm Hawkins at the quoted price (refer Appendix 3). CM Health will also, as requested under the original funding approval, apply the 53m received from the settlement with Hawkins (refer 2.0 above) to the project. Hawkins 2017 Limited With the current problems being experienced with Fletcher Building and Interiors Ltd, Hawkins are presently the only viable Tier 1 contractor in Auckland who could undertake these works. While there are Tier 2 and 3 contractors who may be interested in tendering the works, the high risk nature of Page 3 COMMERCIAL IN CON FIDENCE this specific project is better addressed through a more substantial and better resourced Tier 1 contractor. Hawkins under Downer ownership are now a substantial Auckland force and have an impressive albeit restricted Client portfolio including Auckland Airport, University of Auckland and Precinct Pty. CM Health has in the recent past also been a substantial client. Hawkins has confirmed that their Project Director Mark Katterns will be made available for the project duration. Mark was directly involved in the original building construction and development of the Works Methodology and accordingly is best placed to undertake these works. Further his expansive experience working in a live hospital environment and reputation to deliver exposes CM health to less risk than any other option available. The same management team that built the highly successful CM Health Clinical Services Block (CSB) (Harley Gray) project including Waren Warfield, Director of RCP, acting as Engineer to the Contract is proposed for these w?A summary of Waren?s credentials and experience is presented in Appendix 4. 6.0 Risk Analysis Internationally there have been few examples of that have been found to replicate this pro' Risk MitigaWT? . live ?Rb ing re-clad. 'ro ment and none adult acute beds are pose to re-clad in a fully . election (Hawkins) where it is ed contractor at a time when the Implications Mitigation Stop works Inadequate resourcing 12g We hos noise and Stop work or decanting Works Methodology trials and tions 5 ation hospital beds KPI Performance Bonus - include Management of KPI Harmful spores Danger to health for for hospital disruption 3 entering clinical space immune compromised patients Experienced Tier 1 Contractor /Cost increases due to More extensive timber Provisional sum Increased contingency inherent project risk replacement due to inadequate allowance on provisional realisation discovered rot sums may be required Increased costs for Discovery of other unplanned works Contingency has been building deficiencies advice requested increased. Regular progress regarding this risk) reports to Health 8: Safety Object falling from Personal harm to public Works methodology, height exclusion zone, KPI Incentive KPI for health and safety Tier 1 contractor Time overrun Additional timber Time delay and additional Increased contingency replacement delays costs allowance Tier 1 contractor Quality matters Poor window Future leaks Subcontractor selection CM Health Scott Building Re-Cladding Works Contract Project Status Update Page 4 COMMERCIAL IN CONFIDENCE 7.0 8.0 8.1 CM Health Scott Building Re-Cladding Works Contract Project Status Update installation Tier 1 contractor Supervision by Clerk of Works Planned Timeline Given that this project involves the requirement to re?clad an acute hospital ward building in a live and fully operational state when almost all other buildings are vacated, it is important that the Methodology be tested and refined before works commence in areas having high impact on hospital operations. This facet is an important risk mitigation for minimising disruption to hospital operations. Stage 1 of the 7 stage programme is in an area that affects only 5 beds, wh owing st can affect up to 80 beds. in order to reduce the risk to the hospital it i nderta .- 1 over winter, such that Stage 2 is conducted over the summer I: ospital a . less. iod of some 6 Before work can commence onsite there is a des' als pr -. months before work can commence on site. - delay to the funding approval there is a real risk that the wi I tage 2 affecting some 80 lity over the period of highest beds is pushed into the winter mon w? . .. demand. Successive stages w' ?e ry IS sa - the proven Methodology obtained during Stages 1 2. Alternative wk away from arrangements as they are at this stage with Hawkins, the ailable to CM Health would be a market exercise. A market exercise would of residual, if any, Rules of Sourcing risk associated with proceeding with Hawkins. - a market exercise would involve the risks of a further delay as we commence a further ce 5 and the unknown as to who would tender and their capability. The works are of a design build nature and accordingly tenderers would need to have design management capability. There is some risk that Hawkins would not tender as they could perceive they would not be competitive against companies with lower overheads on this project. Accordingly CM Health is likely to be left exposed to Tier 2 and Tier 3 companies that are of higher risk. None of the likely bidding firms have worked in a live operating hospital environment. Nor do any of those firms have the experience derived by CM Health and Hawkins in undertaking the project and is reflected in the Works Methodology the methodology which it is believed will allow the Scott Building to operate as a functioning hospital while the re?cladding exercise runs its course. For more on the Works Methodology, please refer to Appendix 1. It is believed that Tier 2 and 3 firms are also feeling considerable resource pressure in the current market. CM Health is experiencing resourcing issues with the Tier 2 companies in its employ as supervisory staff leave for better opportunities, one project in particular is on its 5th Project Manager, and another on its Further, report issues with their subcontractors who often fail to turn up and the lack supervision. With this project being the first of its type and in a difficult acute operational environment, CM Health would be ill advised to take on the risk that the tender market seem likely to present, and the Page I 5 COMMERCIAL IN CONFIDENCE 8.2 9.0 likelihood of being left to take on a higher risk contractor. The risks inherent in the project would likely see significant price bids (should any come through) due to the risky nature of the project. However, should a market exercise be necessary, the following Companies that may be capable of completing the project are: NZ Strong Leighs LT MaGuiness Kalmar Robert Cunningham RCC Brosnan Construction ital environmen None of these companies have undertaken works for CM Health in a live acute and neither do they have any prior knowledge of the Scott Building. Do Nothing Recently, due to these ongoing It has been reported that In 2012 in good weather conditions a panel fell from time further exposed fixings were applied to the address the leaks. As time has progressed wo reach sound timber. has progressed further. ty co - er Ixings are currently being applied. ings ha - necessitating longer screws needed to dela . -. - rot having to be replaced, and the higher the risk of panel . required urgently to address the Scott Building cladding issue, associated health pital i ns and asset performance and longevity issues. 3% ?fe tal cost of the project is now $24.990m, plus $2.5m for sewage remediation. The CM Health a rd has endorsed an $8.994m extension to the previous Capital Investment Committee and Ministerial approval for $13m funding, together with contingent approval for $2.5m for associated potential sewage works. Given the need to progress as soon as possible, it is recommended that the Capital Investment Committee approves the submission of the Supplementary Application to the Original Proposal to Investment Ministers for equity funding approval. The CM Health Board would also appreciate guidance from the CIC regarding the risk of additional cost escalation due to unknown deterioration. Appendices: CM Health Scott Building Re-Cladding Works Contract Project Status Update Page 6 COMMERCIAL IN CONFIDENCE Appendix 1 Letter from Chapman Tripp dated 13 February 2018 Brief Summary from CM Health Legal Advisors Appendix 2 Total Project Costs Hawkins 2017 Ltd, CM Health and Separate Sewage Allowance Appendix 3 - Resource Co-ordination Partnership (RCP) and Rider Levett Bucknall (RLB) Endorsements Appendix 4 Waren Warfield Credentials and Experience Appendix 5 Communication: 5A: Letter dated 21 September 2017 to Dr Lester Levy confirming approval of the Scott Builging Business Case: Letter from Dr Levy to the Minister confirming acceptance Letter dated 31 July 2017 to Dr Levy from the Capital Investment Commit? sub iss@ the Scott Recladding Business Case 35> Scott Re-clad Business Case submission to the Capi a om 017 Cover CM Health Scott Building Re-Cladding Works Contract Project Status Update Page 7