Lane Cove Sports and Recreational Facility Cost Overuns

This article was updated on 22 May 2024 at 11.10 am

The Lane Cove Council May Meeting will be held on Thursday 23 May 2024.  The public forum is held on Monday 20 May 2024.

One of the Meeting’s agenda items is an update on the Lane Cove Sport and Recreation Facility Construction.

7% Cost Over Run

The Lane Cove Council briefing papers note that there has been a cost overrun of 7%.  The briefing paper notes:

“Almost 12 months since commencement of construction, the full detailed design documentation for the Lane Cove Sport and Recreation Centre (LCSRC) is now complete and in parallel three key risks have been identified that are impacting the project.  Two of the risks are now forecast to see the $75 million project budget exceeded. The current forecast is in the order of a 7% increase in cost for the project. In reaching the 100% design milestone and upon finalisation of authority approvals and latent condition works within the near future, Council will have past the peak risk stage of the project in terms of cost exposure. Funding has been identified to address the increased costs, which will not impact Council’s existing capital works projects. It is recommended that the report be received and noted, and Council update the Long Term Financial Plan at the June council meeting, post exhibition.”

The report is for noting purposes only and does not mean that the construction will be halted or delayed.

The contract for the Sport and Rec centre was hotly debated over numerous council meetings with several councillors keen to see a budget limitation imposed.  This limitation ended up being $75 million.

The May 2024 briefing note has the following conclusion:

“Council in switching to a design and construct contract arrangement for the construction of the Lane Cove Sport and Recreation Centre has limited the cost risk exposure. In reaching the 100% design milestone and upon finalisation of authority approvals and latent condition works within the near future, Council will have past the peak risk stage of the project in terms of cost exposure. Two risks have given rise to a project cost increase, currently forecast to be in the order of 7%. Funding has been identified to address the increased costs, which will not impact Council’s existing projects. The variation is not considered material in the context of Council’s Long Term Financial Plan currently on exhibition. It is proposed to update the Long-Term Financial Plan post exhibition upon further detailed information being available.”

Key Factors in Overrun

The two key factors leading to the cost overrun are noted as:

“The following summary is provided of the two key cost risks: –

2. Unexpected Sewer Works – Council was aware it had to divert a small sewer branch line relating to 13 properties to the west of the site. Ultimately, despite earlier advice to the contrary, Council was required by Sydney Water to also undertake reconstruction of the main sewer line which was 6m underground, including installation of two new manholes (6m) and encasement of part of the sewer line under the corner of the proposed building (despite Council having been advised that encasement would not be required). There are additional costs for carrying out these works and associated delay costs for the contractor.
3. Updated Remediation Action Plan – The initial Remediation Action Plan submitted with the Development Application, consistent with contemporary practice, called for the excavation of 3 containment cells for the retention of any contaminated material identified on the site, which would ultimately be encased underneath the building slab. During the initial excavation of the site, contaminated material (bonded asbestos) was identified that included organic matter. This material was unable to be included in the containment cells under the slab as organic material would not allow sufficient compaction to support the building slab. On this basis, Council paid a variation of circa $1M to remove material from the site. After identifying this contaminated material, a revised Remediation Action Plan was developed whereby the vast majority of the site (rock areas are excluded) would be treated as if it were contaminated, negating the need for specific containment cells. Essentially this requires either a concrete capping or clay capping across the entire site. To eliminate the risk of importing contaminated material for the landscaping of the site, virgin engineered/manufactured soil will be utilised. There are additional costs for carrying out these works and associated delay costs for the contractor.”

Not Surprising Land is Contaminated

It is not surprising that the Remediation Action Plan would result in further costs – the Golf Course land was reclaimed from industrial land.  A few years ago, In the Cove published the Lane Cove Golf Course history and the following was the land use before the land was reclaimed:

“Much of the area was impenetrable, overgrown with blackberries, lantana, and noxious weeds. While some have described the area as virgin bushland, it had been logged twice by timber mills since 1900, severely in the 1920s.

The cliff face alongside the 7th fairway was created in the 1930s by the operation of a quarry. As a result, most of the cliff was there before the Golf Course.

Part of the 1st fairway was a rubbish dump.

The existing workshop area adjacent to the Greenkeepers Cottage was an illegal panel beaters’ workshop, and remains of many car bodies are buried under the 7^th fairway.

Adjacent to the 7th green were 2 tin huts in which large families lived – squatters’ huts from the depression with no connection to sewer, electricity, or gas. Some internal walls were made of paper while external walls were just a single sheet of galvanised iron.

Much of the land north of Richardson Street was the original Osborne Park Dairy which was operated by the Turnbull family until the end of WW ll, when it was closed down by the State Government because it was too close to the City of Sydney.”

Should there have been a larger contingency budget for the remediation costs?

Lane Cove Council Briefing Notes Confirm $75 million Budget

The Lane Cove Council’s website emphatically states that the building costs are capped at $75 million.

Lane Cove Council noted in several of their briefing papers for council the following.

20 July 2023 Council Briefing Paper

“On this basis, given Council’s commitment to a project cost of $75m, the TRP recommends that Council seek to mitigate cost risk for the project by switching to a form of contract that is more widely used as a cost risk mitigation measure, being the AS4902 lump sum design and construct contract. This change is also supported by the Project Control Group for the project which includes the project managers for the project, Forge Venture Management, the architects for the project AJ+C (Refer AT-1), and Colin Biggers & Paisley lawyers (Refer AT-2). AJ+C will remain the project architect throughout the construction phase until completion of the project. With 80% design completed, this will be included in the Principal’s Project Requirements in the contract to ensure the design as currently proposed is delivered, but within a framework where design risk is included in the lump sum contracted price.

“The negotiation process shall finalise the scope, include design development of appropriate value engineering proposals to reduce costs, remove pricing exclusions, finalise the terms of the contract, and confirm program and delivery methodology. Upon reaching agreement, Council will commence Stage 1 Early Works and enter into a contract utilising a modified AS4902 lump sum design and construct contract for the Head Construction Contractor within Council’s adopted $75M project budget.”

24 August 2023 Council Briefing Paper

“Council has now reached the stage of construction commencement for a much-needed recreation facility to service the Lane Cove LGA and broader Lower North Shore area. Council has achieved this in line with its commitment to a total project budget of $75 million, with construction now anticipated to be included by August 2025.

Council has concluded negotiations with ADCO Constructions and was successful in adjusting the construction contract component of the project to achieve Council’s overall $75 million project budget.”

Councillors Reaction

In the Cove asked the four councillors who asked the most questions about the costs/budgets during council meetings for their thoughts on the cost overrun.  The Councillors were Merri Southwood, Bridget Kennedy, Rochelle Flood and Kathy Bryla.  Councillors Southwood, Kennedy and Bryla have provided comments

Bridget Kennedy’s comments

“A point of note in this month’s agenda is an update on the Sport and Rec project which has had some cost overruns. This month’s council agenda reports that we will exceed the budget. Please note that these figures are not reflected in the financial plan that is out for community consultation but will be updated in due course.

While the overrun is disappointing, I’m looking forward to having the project completed for the community and have been assured by staff that funding has been identified to address the increased costs, that this will not impact the Council’s existing capital works projects, and that in reaching the 100% design milestone and upon finalisation of authority approvals and latent condition works within the near future, that Council will have past the peak risk stage of the project in terms of cost exposure.

As your councillor representative, I will continue to regularly ask for full disclosure on costs to ensure that residents are kept up to date and fully informed.

When initially notified of this information I sought advice from the executive in charge of finance re whether they had any concerns regarding the impact of the overrun on the long term financial health of Council and was assured that the figures specified at the time were not a red flag.”

Councillor Merri Southwood’s comments

“I was surprised and concerned to hear on 2 April of the increased project costs for the S & R facility, having had no prior advice that cost increases were likely.

I understood from statements in the reports for the July and August 2023 meetings and from the detailed explanations provided by the General Manager about the merits of a D&C Contract, that the D&C contract offered the best chance of staying within the $75 million budget.

In the August 2023 meeting Councillors were advised that “negotiations were held to agree the cost adjustment for the risk transfer from the previous construction only arrangements to a full Design and Construct (D&C) lump sum contract”.

Whilst it may be the case that cost risk for latent conditions and authority approvals will normally rest with a principal in a D&C contract, I understood from earlier assurances that these risks must have been absorbed by ADCO as part of the cost adjustment for risk transfer.

I am pleased to have the assurance in the Council report that Council can meet the additional costs.

However, Council is proposing to use interest earned on the investment of project funds to meet some of the cost increases.

This was not contemplated in the approved funding plan. We had the full $75 million covered.

I wonder what other worthy Council projects could have been undertaken with the interest earned had Council not been faced with the S&R overrun.

I fully support the continuation of the project and am at a loss to understand where the suggestion that some Councillors feel differently comes from.

I will, however, seek more detailed updates on risk and cost than we have had so far.

I think I have a duty to do so.”

Councillor Kathy Bryla comments

“I did not expect the cost overrun, especially since the motion passed at the start of the contract suggested this wouldn’t happen. I’m committed to seeing this project through to completion and working with the Council team to achieve a high-quality outcome that considers both our community and the environment. I’ll continue to ask questions and push for transparency to keep ratepayers informed about the status of this complex project. ”

Since we published this articles our readers expressed a desire to hear from all councillors on the issue.  ITC asked for comments from the other councillors, Councillor Andrew Zbik was the only one to respond.

Councillor Andrew Zbik comments:

“Council’s Major Projects Team have the experience and expertise in delivering large projects. The Canopy, Wadanggari Park and the 50m pool and grandstand rebuild were all overseen by this team.

Council’s Major Project framework was externally audited in 2020/2021 to ensure best practice.

In April 2023 Council published a comprehensive commentary about this project and our internal processes following the PWC report regarding North Sydney Pool. This commentary showed Lane Cove already had implemented many of the recommendations from this report. Council to reduce overall project risk at the July 2023 meeting agreed to switch to a combined Design and Construct Contact, a key PWC recommendation.

The project is overseen by a Project Control Group comprising Council Officers and external industry experts.

There have been over 1,000 emails with 100s of questions asked by Councillors to Staff about this project, which Staff have diligently responded to.

Risk can be mitigated. Risk can not be eliminated.

I think any reasonable person who reads the report can see the latent and authority risks that have arisen are unfortunate.  Prior due diligence could not have prevented these risks until construction was underway.

For any Councillor to act surprised that there are risks in delivering a large project is novice at best. Disengenuous as worst. “

Lane Cove Council has a Duty to Keep Residents Updated

Should Lane Cove Council have told residents about these issues earlier?

The remediation plan is dated March 2024.   There was no mention of costs overrun when the Lane Cove Council’s 2024/2025 budget papers were tabled in April 2024.

The Office Of Local Government specifically stated that “the clear accountability for financial project reporting both Council and the community is provided throughout, so that the community is kept informed of key elements, costs and decisions made in relation to the project.”

 

 

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