🚧 😧 How physical works priced at $180,000 turn into $586,518: 6 December 2024
🚧 😧 How physical works priced at $180,000 turn into $586,518: Looking at development contributions costs.
POST 1: Of a short series of posts sharing and seeking feedback on what I have been learning as I prepare for the Policy Response due on 20th December.
Maybe this is food for thought? Maybe I am misunderstanding?
Today, I read a 2021 report titled “Investment gap or efficiency gap?” by the NZ Infrastructure Commission and I got thinking about the council DC spreadsheets.
While I am no expert on project costings, I cannot ignore the effects of percentages on percentages. Perhaps this is part of our inefficiency?
NZ’s Infrastructure Report Card (2021):
• We’re spending as much or more than other developed countries (4.5% of GDP)
• Yet we rank 46th globally for infrastructure quality
• Among wealthy nations? We’re 43rd out of 54
Looking at a basic intersection upgrade cost schedule provided by the council, I have mapped out how costs build up:
We start with actual physical works: $180,256
[Note: They apply a standard 20% Traffic Management cost but isn’t shown in this example, so best we assume it is additional]
Then the additions begin (as a percentage of the physical works):
Construction Phase:
What’s Added                         The Cost
Site overheads (20%)Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â $36,051
Off-site costs & profit (10%)Â Â Â Â Â Â Â $21,631
Running total (the works)Â Â Â Â Â Â Â Â Â Â Â Â Â $237,938
Project Phases:
Phase                               Added Cost
Development (18%)Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â $42,829
Pre-Implementation (16%)Â Â Â Â Â Â Â Â Â Â $38,070
Implementation (11%)Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â Â $26,173
Total                                $345,010
And finally, the cherry on top; a 70% P50 contingency adding another $241,507
*** Is this added 70% p50 actually ‘real’?
End result? A $180,000 job becomes $586,518.
What concerns me is that:
1. We’re treating every cost as if it grows perfectly with project size
2. The same percentages seem to apply whether we’re building a footpath or a motorway
3. By the time we add contingency, we’re adding risk costs to already inflated numbers
I’m not saying these costs aren’t real – but should they really all scale up automatically with project size? Does a bigger project really need proportionally bigger everything?
These costs are what ‘seem’ to be loaded into the Council’s project estimates to set the Auckland Development Contributions payable for new houses.
Please let me know if I am incorrect. But if I am right, look yourselves and remember to “HAVE YOUR SAY”, it is open and we need to look and think, this is:
OUR CITY, and OUR COMMUNITY
The source documents are available on Auckland Council’s Have your Say website
