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Council
14 July 2022
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5. Te
Kaha multi-use arena budget increase
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Reference / Te Tohutoro:
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22/896668
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Report of / Te Pou Matua:
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Mary
Richardson General Manager Citizens and Community
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General Manager / Pouwhakarae:
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Mary
Richardson General Manager Citizens and Community
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1. Purpose of the Report Te Pūtake
Pūrongo
1.1 The
purpose of this report is to introduce three reports to inform the
Council’s decision on whether or not to invest up to $150 million
additional funding into Te Kaha: Canterbury Multi-Use Arena. The reports,
which are to be separately circulated as attachments are:
1.1.1 Report
on the consultation (prepared by the Council’s Research Analysts);
1.1.2 Report
on the Design and Construct contract (prepared by Te Kaha Project Delivery
Ltd);
1.1.3 Report
on financial implications (prepared by Council’s General Manager
Resources/CFO); and
1.
1.1.1
1.1.2
1.1.3
1.1.4
Detailed project costings (Confidential).
1.2 The
decision on whether or not to invest additional funding in Te Kaha is of high
significance in relation to the Christchurch City Council’s Significance
and Engagement Policy. This is the reason Council sought community views
along with expert advice, financial reports and other relevant information.
2. Officer Recommendations Ngā
Tūtohu
That the Council:
1. Receive the report on the consultation on the
investment of a further up to $150 million in the Te Kaha project.
2. Receive and consider the recommendation in the
report from Te Kaha Project Delivery Ltd and advice from the Independent
Assurance Expert and Simpson Grierson independent Legal Advisors.
3. Receive and consider the information in the
report on the financial impact of a further investment in Te Kaha.
3. Detail Te Whakamahuki
Background
3.1 The
Council and Crown have made a number of decisions regarding the scope and cost
of Te Kaha. A chronology was attached to the 9 June 2022 Council report
on Consultation on Te Kaha.
3.2 12 December 2019, the Council approved
the stadium Investment Case and submitted it to Cabinet to consider
funding as part of the Christchurch regeneration project funding. The
Investment Case identified that to be competitive and attract international and
national content a multi-use arena in Christchurch would ideally include the
following fundamental design elements:
· Covered arena
- that allows for year-round events;
· Minimum 25,000
person capacity - to attract national and international content;
· Acoustic
quality - a key to providing a viable facility. It must host premium
events on a regular basis and must be designed to manage the acoustic quality.
3.3 2 March 2020, Cabinet approved the $220
million funding contribution for Christchurch's new stadium. The
total Crown contribution to the project is:
· $10 million
for land decontamination.
· $220 million
towards construction costs.
· Funding of the
Investment Case and Prefeasibility Study.
· Cost of the
land purchase - between 2013 and 2022, the Crown acquired 58,048sqm of land for
the stadium. The total cost was about $59m, including operating costs such as
demolition.
· Cost of
earlier studies 2012 - 2019.
3.4 March
2020, Council took responsibility for leading the multi-use arena project.
Prior to this much of the work was funded and led by the Crown, including the
central city recovery plan, initial scoping study, the 2018 independent review
of the Metro Sports Facility and Multi Use Arena and the pre-feasibility study.
3.5 September 2020, the Council established a
company to manage the build of the CMUA as the project.
3.6 5
October 2020, a Funding Agreement with the Crown was signed. The
Council and Te Kaha project team have developed a constructive relation with
The Treasury throughout the development of the design. The project
team and Council have advised Treasury on progress and potential issues, and
Treasury has provided advice on aspects of the project risk and assurance.
3.7 November
2020, a Request for Proposal document was issued for a main contractor to
work collaboratively with the Council, the Board and Venues Ōtautahi to
develop the design for the CMUA. The approved Project Budget at that stage was
$483,165,830 excl GST.
3.8 29
January 2021, tenders closed on 29 January 2021.
3.9 25
March 2021, the Finance and Performance Committee approved the execution of
the PCSA with BESIX Watpac NZ (CMUA) Limited.
3.10 June
2021, Council was notified of a significant increase in the
Contractor’s Design & Construct (D&C) Contract Price Estimate in
late June 2021. Council and Venues Ōtautahi worked with BESIX Watpac and
the project consultants to identify design alternatives.
3.11 22
July 2021, Council resolved that BESIX Watpac NZ (CMUA) Limited
(Kōtui) be instructed to develop a Preliminary Design within a revised
Maximum Design & Construct (D&C) Contract Price and with a minimum
sports mode seating capacity of 25,000.
3.12 12
August 2021, the Council agreed to increase seating capacity of the arena
to 30,000 and increase the cost by $50 million. As a result, $50 million
was included in the financial modelling for payment in FY24/25. Council
were advised that is was unlikely that funding would be confirmed prior to the
D&C contract being reported to Council.
3.13 The
July 2021 and August 2021 reports to Council noted that
the cost estimates and risk estimates were preliminary estimates and that there
was a real risk of further escalation. Officers
indicated there were risks relating to:
· Additional
price escalation meaning the 3% escalation allowance would not be sufficient,
due to escalation in global steel prices, higher container, shipping and other
freight costs.
· Ongoing impact
of COVID-19 outbreaks and the resulting emergency measures on international
trade were unknown.
· Exchange rate
fluctuations.
· Supply chain
issues and material delays.
· Lack of
skilled resources.
· Other reports
indicated that inflation was due to fall back below 2.0% in 2022 (Treasury
Budget Economic and Fiscal Update 2021 (BEFU)).
· Ground
condition and contamination risks.
· Lack of
skilled resources.
3.14 The cost consultant also noted that at that stage of the project
there would be significant unknown risks and noted that
there were significant financial risks that were not captured within the
contingency figure.
Cost
Escalation
3.15 Te
Kaha Project Delivery Ltd received the final Design and Construct (D&C)
submission from the lead contractor, BESIX Watpac, on 27 May 2022. This
indicated an increase in the D&C contract sum and did not include a fixed
price for some materials because of the volatility in the commodity market, so
there was a risk of further cost escalations.
3.16 Escalating
construction costs are being driven by a number of interrelated factors,
including international shipping constraints, increasing global commodity
prices (for materials such as oil, copper and steel), and international supply
chain disruptions.
3.17 The global
response to the COVID-19 pandemic has led to many of these issues.
International supply chains have experienced further disruption and material
prices increased further in the first quarter of 2022 due to the war in the
Ukraine and China's zero tolerance COVID-19 strategy which involved ongoing
lockdowns. The construction boom in New Zealand is also reportedly pushing up
prices. Demand is outstripping supply and there is high wage and salary inflation
within the construction sector.
3.18 Some small
additions had also been made to the scope of the project to improve guest
experience, operational functionality and commercial viability, resulting in
about $10 million of extra costs.
3.19 The
project cost consultant has advised that the cost escalations experienced with
this project are consistent with what they are seeing in other projects across
the market. However, because of commercial confidentiality, they cannot provide
specific examples.
3.20 BESIX
Watpac submitted a revised D&C Contract Final Bid Price on 30 June
2022. Te Kaha Project Delivery Ltd has been working with
BESIX Watpac to review their D&C submission to provide a compliant
submission. Te Kaha Project Delivery Ltd’s advice on the bid is
presented in Attachment B.
Community views
3.21 The
decision in August 2021 prompted a relatively high level of public interest,
with comments from the media, and members of the public over a period of two to
three weeks. A petition containing 24,116 signatures was presented to the
August meeting calling for a further investment in Te Kaha to enable the
seating capacity to be increased to 30,000 seats. The meeting was live streamed
and the public gallery was full, with most attendees supporting the motion.
3.22 Although the Council was aware of community views when it approved
a scope change in August 2021, the current position is of sufficient
significance to justify further consideration of the views of the
community in the decision-making process.
3.23 The
Council received legal advice that it should seek community views about the
additional funding prior to making a decision as Section 78 of the Local
Government Act states:
S78
Community views in relation to decisions
(1) A local
authority must, in the course of its decision-making process in relation to a
matter, give consideration to the views and preferences of persons likely to be
affected by, or to have an interest in, the matter.
3.24 9
June 2022, Council Resolved CNCL/2022/00001 that “staff proceed with
the proposed process to seek community views on whether or not Council should
invest additional money into Te Kaha: the Canterbury multi-use
arena.” The consultation commenced on 10 June and closed on 5 July
2022. Attachment A presents the findings from this
consultation process.
4. Options
4.1 The
June 2022 report identified three options:
4.1.1 Option 1 - Invest an
additional up to $150 million to enable the project to continue as planned,
4.1.2 Option 2- Stop the
project altogether, or
4.1.3 Option 3 - Pause and
re-evaluate the project.
Option 1 - Invest an additional up to $150 million to
enable the project to continue as planned
4.2 If
the Council accepts the cost increase, the project would proceed with the scope
agreed by Council in August 2021. The key fundamentals and benefits
outlined in the Investment Case would be realised. It would be consistent
with the key deliverables in the Funding Agreement with the Crown.
4.3 However,
there would be a financial impact, including an impact on rate and
Council’s debt headroom The Financial report in Attachment C presents
the financial impact on current projections and is based on the revised project
cost estimate and timing.
4.4 There
would also be an opportunity cost of investing further funding in this project.
4.5 Council
will need to secure the Crowns assurance approval as per the Funding Agreement.
Option 2 - Stop the project altogether
4.6 If
the Council discontinues the project it would avoid the financial impact,
including potential rate increase and the impact on Council’s debt
headroom. Council would also be able to decide if the remaining Te Kaha
budget should be allocated for other projects and/or be used to reduce forecast
borrowing and rates.
4.7 However,
there would be $40 million sunk cost spent on design development, the
Pre-Contract Services Agreement and enabling works. The Council may be
liable for some further costs because of agreements that it already has in
place.
4.8 Large
sport and entertainment events would have to continue using the temporary
stadium in Addington. The temporary stadium is made of a scaffolding
structure originally intended to have a life of around five years.
Constructed in 2012, the venue is now 10-years-old, and, whilst structurally
sound and subject to quarterly structural assessments, it will in due course
require decommissioning. On this basis, if Te Kaha is not built, there
will be no venue in Canterbury suitable for large sporting or entertainment
events in the long-term.
4.9 The
Crown investment would be withdrawn and some funding may need to be
returned.
Option 3 - Pause and re-evaluate the project
4.10 The Council could
pause and re-evaluate the key fundamentals and the priorities for the project,
along with the associated costs and benefits. These were last fully assessed in
the Investment Case in 2019 and the context and expectations may have changed
along with the affordability issues.
4.11 There is a
possibility that the re-evaluation could identify an option which reduces the
quantum of the cost overrun and still delivers the identified priorities.
This would avoid the financial impact, including potential rate increase and
the impact on Council’s debt headroom. At this stage it is not
possible to anticipate what this could be.
4.12 However, to
reduce the cost increase it is likely that changes to scope and capacity would
need to be considered. If an option compromised the key deliverables in the
Funding Agreement, the Council would need to attempt to renegotiate the Funding
Agreement with the Crown. If the Crown did not agree to this change and
withdrew its funding, we would be unable to proceed with the project.
4.13 Venues
Ōtautahi, who will operate the arena, has advised that reducing the scope
would impact on the arena’s financial viability and likely necessitate
additional funding for annual operating costs.
4.14 An estimated $30
million would be spent on review and redesign. It would push out the completion
date for the arena by 9 to 12 months to 2027, as, given the extent of the
required changes, we would need to go back to the start of the three-stage
design process. Even reverting to a 25,000 seat capacity would require a 9 to
12 month delay for redesign and the Project Team have advised that the
construction cost would be over budget.
4.15 Delaying the
project for redesign is likely to result in further escalation during the
design period even if the rate of price escalation reduces.
4.16 There is a risk
that the contractor would not be in a position to dedicate another 9 to 12
months to further design. This would delay the project further as the
project would have to go back to the market for design.
5. Policy Framework Implications Ngā Hīraunga ā- Kaupapa here
Strategic
Alignment Te Rautaki
Tīaroaro
5.1 This report supports the Council's
Long Term Plan (2021 - 2031):
5.1.1 Activity: Recreation, Sports, Community Arts and Events
· Level of Service: 7.0.2.2 Provide well utilised
facility based recreational and sporting programmes and activities. - The
number of participants using multipurpose recreation and sport centres, outdoor
pools and stadia at least 5.0 million
Policy
Consistency Te Whai
Kaupapa here
5.2 The
decision is consistent with Council’s Plans and
Policies. However, if the Council decides to increase the budget for Te Kaha
this is not consistent with the Long Term Plan. The report from the
General Manager Resources/CFO outlines details in Attachment C.
Impact on
Mana Whenua Ngā Whai Take Mana Whenua
5.3 Mana
Whenua for the area is Ngāi Tūāhuriri. The Te Kaha Project
Delivery team have been actively engaged with Ngāi Tūāhuriri.
The Chair of Te Kaha Project Delivery was nomination from Ngāi
Tūāhuriri.
5.4 Mana Whenua have gifted the name Te Kaha to the Multi Use Arena, and
have gifted the name Te Kaharoa to the precinct. They have also blessed
the site, prior to any activity being undertaken on site.
5.5 Through Ngāi Tūāhuriri Whitiora
have been engaged as consultants to partner with the Project Delivery Team to:
· Provide
a cultural narrative for the precinct and site;
· Advise
on design and colouring for the finishes of Te Kaha; and
· Advise
on design and layout of hard and soft landscaping within the precinct.
5.6 The
Project Delivery team will continue to work with them throughout the project,
including for cultural support and advice, further blessings and as part of the
opening.
Climate
Change Impact Considerations Ngā Whai Whakaaro mā te Āhuarangi
5.7 The report from Te Kaha Project Delivery Ltd in Attachment B
outlines the climate change considerations.
Accessibility
Considerations Ngā
Whai Whakaaro mā te Hunga Hauā
5.8 The report from Te Kaha Project Delivery Ltd in Attachment B
outlines the accessibility considerations.
6. Resource Implications Ngā Hīraunga Rauemi
6.1 The
report from the General Manager Resources/CFO in Attachment C outlines the
resource implications.
7. Legal Implications Ngā Hīraunga ā-Ture
Statutory power to undertake proposals in the report /
Te Manatū Whakahaere Kaupapa
7.1 The
Council has the statutory power to make the decision as to whether and how to
proceed with Te Kaha, but must comply with its decision-making obligations
under Part 6 of the Local Government Act 2002.
7.2 Section
76 of the Local Government Act 2002 requires that the decision-making
provisions in Part 6 are ‘appropriately observed’ for high
significance decisions. Section 77 also provides that if any of the
options for a decision involves a significant decision in relation to land or a
body of water, the Council must take into account the relationship of
Māori and their culture and traditions with their ancestral land, water,
sites, waahi tapu, valued flora and fauna, and other taonga.
7.3 Furthermore,
under Part 6, the more significant the matter, the higher the standard of
compliance is expected from the identification and assessment of options, the
consideration of the views of those affected, and the extent of the written
record kept showing compliance.
7.4 In
this case, the decision is one of high significance. The Council needs to
consider the views and preferences of interested and affected persons.
Attachments / Ngā Tāpirihanga
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No.
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Title
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Page
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a
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Consultation
and submissions analysis (Under Separate Cover)
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b
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Advice on
Design and Construct contract (prepared by Te Kaha Project Delivery Ltd)
(Under Separate Cover)
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c
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Report on
financial implications (prepared by Council’s General Manager Resources/CFO)
(Under Separate Cover)
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d
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Detailed
project costings (Under Separate Cover) - Confidential
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In addition to the attached documents, the following background
information is available:
Confirmation of Statutory
Compliance / Te
Whakatūturutanga ā-Ture
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Compliance with Statutory Decision-making
Requirements (ss 76 - 81 Local Government Act 2002).
(a) This report contains:
(i) sufficient information about all reasonably practicable
options identified and assessed in terms of their advantages and
disadvantages; and
(ii) adequate consideration of the views and preferences of
affected and interested persons bearing in mind any proposed or previous
community engagement.
(b) The information reflects the level of significance of the
matters covered by the report, as determined in accordance with the Council's
significance and engagement policy.
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Signatories / Ngā Kaiwaitohu
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Author
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Mary
Richardson - General Manager Citizens & Community
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Approved By
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Leah Scales -
General Manager Resources/Chief Financial Officer
Mary
Richardson - General Manager Citizens & Community
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