Fletcher clinches $300m Wiri prison project

BUSINESSDESK: Fletcher Building, New Zealand's biggest construction company, has concluded negotiations with the government on the $300 million design and build for south Auckland's new Wiri prison.

Fletcher is part of the SecureFuture group, along with Serco, which will operate the 960-bed facility, Spotless Facility Services, which will do maintenance, and equity partners John Laing, InfraRed and Accident Compensation Corporation.

The group is being advised by Macquarie Capital.

The total cost of the 25-year contract is $840 million and it is the first of the government's public-private partnerships, or PPPs, where the private sector is allowed to invest in what has traditionally been a public sector role of providing health, education and other facilities.

Shares of Fletcher rose 1.4% to $6.64 and are up 5.9% this year.

In August, the Auckland-based company reported a 17% drop in construction earnings to $50 million, though its backlog of building work had climbed to $1.09 billion at the end of June from $764 million a year earlier.

Corrections Minister Anne Tolley says the PPP structure of the prison deal meant a saving of $170 million for the government. The SecureFuture group "will face financial penalties if it fails to meet custodial, rehabilitation and reintegration measures".

Fletcher says construction will take about 2½ years, with completion due in mid-2015.

 

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First PPP ? Certainly the first one after the Hobsonville Schools PPP ....

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Excellent news. This consortium has the gravitas to ensure success for this procurement model. While PFI/PPP projects have been around for almost 20 years in other parts of the world. it has taken much of that time to refine the model and demonstrate in clear terms the value for money advantages. The integration of public and private sector expertise should now be extended to other projects!

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Clearly you must be a vested interest. For anyone who would rather take a unbiased view - have a look at the disaster that PFI/PPP projects have been in the UK. They represent dreadful investments for the taxpayer, but enable governments to bribe the electorate with instant gratification whilst making their mates in the procurement companies fabulously wealthy.

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In answer to "Crowd pleaser", I have no vested interest in this or indeed any PPP project. While it is correct that many of the earlier PFI/PPP projects in the UK were 'launched' on marginal whole of life cost benefits, and many did not deliver the promised long-term benefits, the PPP model now in vogue is more robust. Moreover, the selection criteria for which projects are appropriate for PPP is significantly more advanced today. The key for us in New Zealand surely is to learn from those earlier UK lessons and ensure the full benefits of the integration of the two sectors is optimised when we launch PPP's here.

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