The government’s ambitious Te Mato Vai (TMV) project was never a $60 million scheme, says financial secretary Garth Henderson.
And he admits promotion and marketing of the venture to deliver potable drinking water in Rarotonga as a $60 million project was incorrect.
Henderson said the projected cost was a “class five” estimate that carried an intended level of accuracy of plus or minus 50 per cent.
A class five estimate is based on limited project scope definition and is generally used to determine indicative end cost values for comparison of scope or delivery method options and for initial evaluation of project economic viability.
“The issue was this (Te Mato Vai) was projected or promoted as a $60 million project. The reality is, it never was a $60 million project. It was $60 million plus 50 per cent, it was actually a $90 million project,” Henderson said.
“Why it was promoted as a $60 million project, I’m not sure … whether it was simply the officials at the time who were doing the communication didn’t understand it because they are not engineers and class five is an engineering concept, so they promoted it wrong.”
Henderson said over time as they evolved the project, the plans became more defined and cost estimates became more accurate.
He said the government started to see the cost increase, partly due to the delayed start of stage two.
“There were issues around stage one with access to land for the ring mains, but we dealt with them. The delays with (accessing) the land where the intakes are, delayed the start of stage two,” Henderson said.
“When we went to market for stage two project, we had a preferred contractor ready to move, but the issues related to land weren’t resolved so work couldn’t start, so the delays between awarding the contract, and having the preferred contractor dragged on.”
Henderson said due to the delay in the start of the stage two, MFEM had to seek a re-price and the costs went up.
He said they expected an escalation of $2 million when in fact the price went up by $8 million.
Henderson also said their estimate was well below the mark – about $8 million below the bid that eventually won the contract.
“The original budget estimate for stage two construction was underestimated as well. When they did (estimate) before they went to market, I asked them (the engineers) what stage two is going to cost. They came back and said about $26 million, which I guess was based on engineering and market awareness.
“When we went to market, nothing came in that price. I think the lowest was $32 million. In my experience, when people focus on $60 million project, initially all their estimates fit within.
“The estimates were influenced (by the words) “$60 million project” because every time we went back, the market was saying ‘no, if you want this infrastructure, this is the price’.
“There was a mental block to keep it under $60 million when in reality, it wasn’t a $60 million project.”
The winning bid was about $34.6 million, much higher than the $26 million which was estimated before the bid opened.
Other factors which increased the budget for stage two were mainly the state of the roads leading to the intakes and problems with accessing the intake land.
The TMV project is funded by Chinese government through a $25 million loan which took care of stage one, and $15 million grant from the New Zealand.
The Cook Islands government will pay the remaining $50 million and Henderson confirmed they would not need any further loans to fund that.