THE CLYDE SHAM

by

Crispin Murray

(ex - Commercial and Administration Manager for the Clyde Power Project)

How New Zealands financial black hole was finally completed and at what cost to people and reputations.

This book contains a health warning for all overseas consultants, particularly those from England.

CHAPTER 20

CHAS. PILCHER, FLETCHERI HAM AND THE EARLY DAYS OF THE TAILRACE CONTRACT

An example of another claim that CPP had to deal with arose on the tailrace contract.

This contract created a lot of problems for CPP and the residents of Clyde . The contract required the contractor to lower the level of the bed of the Clutha River stretching from just below the dam to some 10 kms towards Alexandra and Roxburgh.
The first contractor for this work was Chas . Pucher who went into receivership before Rab Brown and I came to the country.
Chas. Pucher had purchased a lot of plant including many lengths of conveyor belting, floating barges and dredging equipment.
As his financial problems grew then the contractor pledged his plant to the bank as collateral for his loans.
Now, at some stage the bank and ECNZ must have got together because ECNZ agreed to buy the plant from the bank if Chas. Pilcher went into receivership.
I imagine the bank took little urging, so when CPP came to look at this contract we found that we had inherited all the yellow painted Pucher plant.
We also inherited a labour problem with the marine craft. Ex- Pilcher workmen on the craft claimed that ECNZ had agreed to pay them to remain on board and keep the equipment in good condition but had then reneged on the deal.
The men had taken their case to their Union and I came to know Calvin Fisher the Union representative.
At this stage ECNZ were very touchy about the affair.
The men were claiming over $ 200 , 000 and ECNZ would not discuss the matter.
CPP was not really concerned at ECNZ's earlier problems.

We just wanted to get the contract moving.
Dave Frow seemed concerned because I proposed working out a settlement with Calvin Fisher. I think he was concerned on my behalf but I assured him that union negotiations were nothing new and the best thing he could do would be to quietly fade into the background, which he did.
Calvin Fisher and I settled the matter at $ 43 , 000 and I later told Dave Frow that the matter was resolved without giving him any details.
To arrange payment I gave Fletcher I Ham a variation by which they paid the union and I then included the variation in their contract.
No question was ever put to me by ECNZ audit about this settlement.
Why not?

Our next problem on the tailrace contract arose because of the recently introduced Resource Management Act.
To deepen the river bed below the main dam we would reduce the river flows through the dam to allow Adkins Blasting to blast out the rock bed.
However the local residents of Clyde were not too impressed with the times that Adkins were blasting particularly when that was at night.
So they complained.
This brought in the local council and we relied upon SGBW to find us a member of their staff who was knowledgeable in the workings of the Act.
Ultimately we had to reduce the working hours of the contractor and Adkins Blasting the subcontractor.
It was this problem that led to my proposal to loan CPP monies to help Adkins Blasting.
Clearly the joint venture of Fletcher I Ham were also directly effected and in due course submitted a claim to CPP for over $ 7 million. I asked my old contracts administrator Nic Davies to look into this claim. Nic by this time had finished his contract on the site and was back in his own practice.
The original joint venture tender price was $ 53.1 million dollars. And when the re-negotiation with Fletchers took place to change the contract into target cost then I managed to have the target agreed at $ 50 million dollars.
Now I was quite pleased with that result because we had been warned by ECNZ that we only had a $ 1 million dollar margin on the original tender price.
Negotiations on the claim went back and forth to the extent that CPP started to prepare for an arbitration and duly advised the JV.
In fact Rab Brown and I would have attempted to avoid arbitration as it could delay the next project and our leaving.
However we could not back down without throwing our case away and to reinforce our outward determination I had bars put up on the site office windows. This was supposed to tell the contractor on site that we saw our documents as being valuable for the forthcoming arbitration, and it did not go unnoticed.
SGBW were advised and Derek Firth asked if he could expect to receive our recommendation for the appointment as arbitrator!
Against the claim of $ 7.31 million dollars w& had offered a settlement at about $ 1.5 million and which I later came to increase to a final offer of just over $ 2 million.
At that point and with the offer submitted to Fletcher/Ham I left for Christmas in the UK. It was December 1993.
Before I left , our site agent Philip Newsome said he was planning to have dinner with one of the senior Dutch members of the Joint Venture and could he make a last attempt at a settlement.
I was in the UK when I received a fax from Philip.
The JV would settle for a figure fractionally above mine , would I agree?
I faxed back agreement and that was the end of the claim.
When I returned to New Zealand in January 1994 we calculated the total payment to be made on the contract including the now agreed claim at just over $ 46 million dollars , a saving of over $ 7 million dollars on the original tender and below the target.
Keith Turner the new general manager for ECNZ made a point of thanking me for what he saw as a good settlement , which it was, but I knew he had no idea what was in the settlement nor how it had been achieved and neither had the ECNZ audit team and they did not even ask.

CHAPTER 21

SURPLUS ON A TARGET CONTRACT AND A MISSED OPPORTUNITY FOR THE PEOPLE OF ALEXANDRA

One aspect of target cost contracts that seemed to totally confuse the now sagging ECNZ audit team concerned surplus plant and equipment.
Any plant, equipment or materials that the contractor had purchased for a target cost contract was owned jointly by the contractor and the client.
This meant that at the end of a contract there had to be a sale of the surplus items the proceeds of which were then credited against actual cost.
I was lucky to have an experienced WORKS employee John Mcllhatton to handle all the sales off site.
ECNZ had shown no interest in any surplus equipment and the audit people had been completely disinterested in the effect of the sales.
Joyce Sutton our CPP accountant opened up an account to record any sales although as she said "ECNZ would show little interest in anything under $ 1 million dollars".
Eventually John Mcllhatton was able to show sales over the whole project in excess of $ 5 million dollars which fully justified all his efforts.
Now the tailrace surplus equipment was slightly different to the normal run of cars, trucks and steel pipes.
This time we had a lot of floating equipment plus all the Pilcher conveyor belting which was never used.
ECNZ were aware that the work of the Clyde Dam and particularly the work on the taurace contract had caused a large quantity of silt to drift down river and become trapped in small coves and bends in the river all the way down to Roxburgh.
One particularly bad area was near to Alexandra where a bend in the river had created a natural depository for the silt.
An option open to ECNZ was to dredge the river and reduce the risk of flooding. And ECNZ did consider the possibility.
If ECNZ had agreed to let such a contract, which was outside the CPP brief, then we could have given the work to Fletcher IHam as a variation to their existing CPP contract.
The idea attracted me because I could perhaps do a deal with the carrot of this new work helping to resolve the claim which at that time we were trying to resolve with the JV.
For ECNZ, they would have the benefit of the marine craft actually on the river and although the equipment would require modification to allow for the dredging of silt rather than rock, it would overall still be cheaper than any other method of dredging.
The level of the river bed had been monitored for years by the relevant authorities and WORKS had detailed drawings.
Up to that time the only method of cleaning the silt away had been by "flushing" which occurred when excess water was allowed to pass down the river.
Unfortunately this method did little to help the inhabitants of Alexandra who without some help would be subject to future flooding. ECNZ however took so long to make a decision that eventually the equipment was sold off at auction.
Farmers bought some of the marine craft and the rest was sold to a company now operating a successful dredging company in the North Island.