Saltwater Project Costs

Published on Wednesday, 20 November 2024 at 7:45:00 PM

On awarding the tender, the forecast project cost for Saltwater was $44.55 million, comprising $38million for construction and $6.55 million for contingency funding and other project costs, such as design.

On 20 November 2024, the Council endorsed an increase of up to $7 million to this project value in line with revised projections relating to the final construction cost. This will take the project budget from the original forecast of $44.55 million to $51.55 million.

These additional costs will be funded from a mix of new loan borrowings of $5,264,952 (over a loan term of 10 years) and funding from three existing cash reserves: New Infrastructure Development Reserve ($1,278,295), Legal Expenses Reserve ($340,000) and Community Facilities – City District ($116,753).

This represents a 15.7% increase, which is modest in comparison with average cost escalations of 25% experienced by the construction industry in recent years (as per ABS Producer Price Index for the WA Building Sector)

The City entered into a lump sum contract for the construction of Saltwater building. A lump sum contract means an agreement where the contractor agrees to undertake and complete the construction of a building for a fixed amount, with no adjustment of the contract price unless the principal/client requires changes to the scope of the project. It is typical for a lump sum contract to have clauses requiring from the principal/client (in this case the City) to assess and, if approved, pay the additional costs as a result of variations to the project scope. For this purpose, contingency budgets are generally provisioned and for the Saltwater project, there was a contingency provision of $3 million.

Construction of a complex theatre building of the size and scale of Saltwater brings with it some inherent risk, and a number of factors have adversely impacted the progress and cost of the project. These include design issues with some omissions at the tender stage, integrating identified value engineering items into the building, developing a final design which was slightly more complex than anticipated and a range of latent (unforeseeable) conditions. These circumstances have resulted in design changes, with multiple drawing revisions and clarifications, and the approval of contract variations for which the City is liable to pay.

At the same time as endorsing the project increase, the Council resolved to transfer the remaining $5.38 million of already existing project funds (from the original $44.55 million allocation) from reserves and restricted accounts onto the City’s 2024/25 budget to enable them to be spent as planned. This funding is in line with the original Council-endorsed project value and does not represent any additional increase.

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