Budget Deficit Forces Gippsland to Defer Water Services

Michelle Remo, “Big 4″ observer
May 19, 2011 /

A budget deficit in Gippsland water factory has forced the management to put off a water services project, blaming poor management and weak oversight as the causes of cost inflation.

A damning 95-page report by accounting and consulting firm Deloitte has identified a number of areas that were said to have blown out the costs of the project starting April 2007, including inaccurate estimates of costs.

The report, Gippsland Water Factory Assessment, was commissioned by the Brumby Government and was completed in 2009, but was not released by the former Brumby Labor Government despite calls from the then Opposition.

Even the Gippsland water factory claimed it had not seen the report. Gippsland Water chairman Richard McDowell said his organization did not receive a copy of the report until April 2011.

But the Baillieu government, which was criticized by Melton MP Don Nardella for failing to prioritize services and infrastructure in growing communities, has decided to make it accessible to the Gippsland people who were frustrated by unanswered questions as to why their water bills soared high.

Gippsland water has entered into a public-private partnership with commercial companies like Transfield Services, CH2MHill and Parsons Brinkerhoff, to share the costs of the water works project, including its two-year operation.

According to Deloitte’s final draft, the cost inflation was caused by the key design, engineering and cost budgeting roles that remained vacant in the first 18 months; projects added into the scope without due permission; and a number of significant risks that were identified later in the project.

The initial cost was estimated to be at $140 million, but may perch at $260 million. The report added that estimation of the costs for water works was done in a conceptual basis rather than basing it on the final design. In the early stages of the project, a total of 111 changes were made that added to the costs.

McDowell, flagging a $20 million shortfall, confirmed that the cost for water works will reach almost $240 million, which will include $15 million for the first two years of operation.

The estimated budget would be supplemented by the money from the deferral of other water works of Gippsland, McDowell said, assuring that consumers would not foot the costs in contrast to a number of claims.

According to the report, the alliance leadership team, alliance management team and the project manager should have identified the root cause of the differences after a few months of continual variance between the planned and actual expenditure.

In fact, the report said junior staff were told to fill the key functions in the water services project that “impacted quality and put pressure on the schedule during the design phase.”


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