The New Dunedin Hospital is a new hospital to be constructed in the lower region of New Zealand’s (NZ) South Island and when complete, will become the largest hospital building in the country.
The hospital will include 432 beds, 16 operating theatres (expandable to 21), and 30 intensive care unit beds (expandable to 40) and is being built in response to an urgent clinical need.
Complex projects such as the New Dunedin Hospital typically suffer from an imbalanced risk allocation between the client and contractor due to a lack of investigative works or market engagement in the planning process.
Imbalanced risk allocation can result in insufficient contractor appetite to deliver large complex projects leading to contractors electing to not bid on a project, with contractors who do bid having substantial risk priced into their tenders. In some situations, an imbalanced risk allocation can also negatively impact the financial stability of projects – particularly if one party to the project holds a substantial amount of risk that has many ‘unknowns’ or is ‘non-priceable’.
Clients may also inappropriately apply their risk experience from smaller scale social infrastructure to large-scale civil projects, or alternatively allocate risk by inappropriately using precedents from prior projects with different characteristics.
To attract adequate competition, risk must be well defined and quantified using market engagement, where key risk items that need addressing are explored in a collaborative manner in order to structure the project – such as packaging and risk allocation – to meet the expectations of bidders in the market.
The NZ Ministry of Health undertook a market engagement process in 2019 for the New Dunedin Hospital, to provide information about the project to industry and gather views from the wider market on delivery aspects such as packaging and risk allocation.
The market engagement process took place over several weeks in July 2019 and involved industry briefings in Dunedin and Sydney, a written questionnaire seeking feedback on key focus areas, and a series of one-on-one meetings with selected contractors and subcontractors to gather more detailed feedback.
NZ Ministry of Health – Proponent.
September 2019 – Conclusion of market engagement process
November 2020 – Request for Proposal for Early Contractor Engagement for the acute services (inpatient) building released
January 2025 – Estimated completion of outpatient building
April 2028 – Estimated completion of inpatient building.
Results / impact
The market engagement process found broad industry support for the project subject to the Ministry adopting the right procurement, risk allocation, and packaging approach, with industry emphasising their preference for a collaborative relationship between the Ministry, design team, and contractors through an alliancing or collaborative working arrangement.
This market engagement process informed the final packaging released to the market and gave industry the opportunity to provide suggestions that would deliver a more balanced risk allocation, such as:
Undertaking early works to de-risk the site ahead of main construction works as a way to adopt a fairer risk allocation
Combining the ambulatory services centre and acute services building into a single package, delivering program efficiencies and improved resource co-ordination
Expressing preference for long lead-times, structured workforce training opportunities, and use of prefabrication due to the limited labour available within Dunedin.
Key lessons learnt
Market engagement processes are an effective way to provide information to the industry on an upcoming project and optimise project packaging and risk allocation, generate contractor appetite to deliver a large complex project, and avoid having substantial risk priced into tenders.
Industry participants reflected positively on the New Dunedin Hospital engagement process and reinforced the importance of early and ongoing communication between proponents and the industry.
The New Dunedin Hospital engagement process found that collaboration and early industry involvement are two core principles that are key to successful procurement and delivery of the project and are key to ensuring the appropriate procurement models are explored in the detailed business case.