Kawatiri Business Review
DETERMINING THE FUTURE OF BULLER DREDGING
MARCH 2021
RMC2 Limited t/a RMC²
Prepared by Ray Mudgway
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Author: Ray Mudgway
All work is done, and services rendered at the request of, and for the purposes of the client only. Neither RMC2
Limited T/A RMC² nor any of its employees accepts any responsibility on any grounds whatsoever, including
negligence, to any other person.
While every effort is made by RMC2 Limited T/A RMC² to ensure that the information, opinions and forecasts
provided to the client are accurate and reliable, RMC2 Limited T/A RMC² shall not be liable for any adverse
consequences of the client’s decisions made in reliance of any report provided by RMC2 Limited T/A RMC², nor
shall RMC2 Limited T/A RMC² be held to have given or implied any warranty as to whether any report provided by
RMC2 Limited T/A RMC² will assist in the performance of the client’s functions.
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Contents
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Section 1: Introduction – giving context ..................................................................................................................................................................................4
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1. Executive Summary ..........................................................................................................................................................................................................................................5
2. Business review .....................................................................................................................................................................................................................................................6
Section 2: Value Proposition – defining our opportunities ........................................................................................................................7
1. Immediate focus - government funded works in Buller ............................................................................................................................................8
a. Gravel extraction .........................................................................................................................................................................................................................................9
2. Growing the Buller and West Coast ...............................................................................................................................................................................................10
a. Economic Impact Assessment ..................................................................................................................................................................................................11
b. Resilience & Lifelines strategy ...................................................................................................................................................................................................14
3. Dredging growth opportunities ........................................................................................................................................................................................................15
Section 3: Business plan – leveraging our opportunities .........................................................................................................................16
1. Capital plan .............................................................................................................................................................................................................................................................17
2. Financial model ..................................................................................................................................................................................................................................................18
3. Contractual positions ...................................................................................................................................................................................................................................19
4. Business structure ...........................................................................................................................................................................................................................................21
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5. Risks ................................................................................................................................................................................................................................................................................22
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Section 4: Outcomes – taking action .........................................................................................................................................................................................24
1. Summary ...................................................................................................................................................................................................................................................................25
2. Recommendations ..........................................................................................................................................................................................................................................26
Appendices ..........................................................................................................................................................................................................................................................................27
A. Financial model ................................................................................................................................................................................................................................................28
a. Cashflow for Buller works only .................................................................................................................................................................................................29
b. Cashflow including outer region work .............................................................................................................................................................................30
B. Surveyor summary ......................................................................................................................................................................................................................................31
C. Anthony Harper legal advice............................................................................................................................................................................................................40
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S E CT I O N O N E
INTRODUCTION
Giving context
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Executive Summary
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Background
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Since Holcim ceased Westport operations approximately seven years ago, the
institutional knowledge of the dredging business has understandably diminished. Long
serving local experts left the business due to lack of sustainable and reliable work and
dredging has occurred on a largely adhoc basis for several years.
The Kawatiri was essentially laid up to reduce costs
in the face of significantly lower revenues which was
sensible. Being laid up also had the effect of creating
some deferred maintenance on the ship due to the
The key to creating a sustainable
absence of a full-time crew.
business is to rebuild the
An older specialist vessel such as the Kawatiri
institutional knowledge across the
requires an ongoing program of repairs and
operation. This is achieved and
maintenance which is carried out by a dedicated
underpinned by strong revenues in
crew. A large proportion of these works are unskilled
Buller and elsewhere.
in nature but important to the sustainability and
reliability of the vessel.
The good news is that Buller’s port is undergoing
Port of Nelson and Eastland Port (Gisborne) are
a transformation with approximately $1.8m of
also interested in long term partnership type
/
dredging work booked for the Kawatiri through
RMC
agreements which could bring approximately
government funded projects. This provides a stable
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$1m revenue per year.
income in the short term to not only reset the
Buller river for shipping and create flood resilience
Noting the opportunities and the recent maintenance
for Westport, but to also fund some immediate
issues on the Kawatiri, this paper was commissioned
maintenance needs on the vessel.
to conduct a full review of the dredging business.
The aim as to understand how to make the dredging
Additionally, the reality of a large scale export
business safe, sustainable and profitable. There is
business (Heavy Mineral Sands) is gaining
a pathway to achieving these objectives which are
momentum and may start on the Buller in 2021.
outlined in sections throughout the paper.
This would effectively replace the Holcim operation
of the past and makes the Kawatiri a vital component
The key to creating a sustainable business is to
of the port system (without her there is no large port).
rebuild the institutional knowledge across the
operation. This is achieved and underpinned by
strong revenues in Buller and elsewhere.
Ray Mudgway
Managing Director, RMC2
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Business review
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To complete a thorough review of the current
business, and to understand the potential pathways
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forward, the following building blocks formed
the review:
The business review:
1. Define the value proposition for the Kawatiri
Builds on the steps already taken by BDC
in terms of:
following the strategic review in 2020.
a. Buller.
Explores the governance, ownership
b. The West Coast Region.
and management recommendations in
c. New Zealand.
more detail to make a final decision on
business structures.
2. Define the capital plan required to sustain
operations.
Looks to leverage the business
a. Define the list and cost of works required
opportunities that have gathered
to bring the vessel (and business) up to
momentum since the strategy
sustainable operational standard.
was written.
b. Define working capital requirements
under all scenarios.
3. Create a comprehensive financial model
5. Complete a review of insurances required
that clearly shows the financial pathway
for sustained operations.
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to sustained operations.
6. Recommend an operating model to sustain
RMC
4. Define the contractual positions the business
safe and reliable operations.
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requires to sustain operations. This includes
7.
Clearly outline the risk mitigations for the
crew contracts under casual and full time
operation, council, and rate payers of Buller.
arrangements, Buller related contracts, Outer
This paper steps through each of these building
Region Contracts (e.g. Port Nelson).
blocks outlining the various options and approached
in each section before making recommendations
in section 4 of the paper.
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S E CT I O N T W O
VALUE
PROPOSITION
Defining our opportunities
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Immediate focus
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Central Government funded works –
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approximately $2m
There are three dredging jobs requiring completion
The lagoon works need to be completed by April.
in Buller and paid for by the government:
Jetty removals are scheduled for July. The river
1. Lagoon dredging to 4m for the new pontoons
gravel extraction can start following an RFI process
as funded by the PDU up to $330,000.
scheduled for late February. These works may take
several months pending work methodology of the
2. Jetty removals from the lagoon following the
RFI process.
construction of new pontoons as funded by the
PDU up to $200,000.
Additionally, the accretion of gravel in the Buller
has increased the flood risk to Westport township.
3. Gravel removal on the river side of half tide wall
Therefore, a dredging capability is required long
for river operability and flood protection for
term for the township and river.
Westport as funded by IRG up to $1.5m.
Without an operational dredge, these services will
need to be acquired through third parties at great
expense (and potentially delay). Conversely, the
work is paid in full by central government funds thus
providing a guaranteed revenue stream in 2021 for
the Kawatiri.
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Gravel extraction (from The IRG Ports Package 2020)
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$1,500,000
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As part of the West Coast Ports strategic review in late
2. Degradation of the wall is accelerated by
2019 (funded by the PGF), a hydrology report was
the gravel build up.
commissioned in consultation with the Buller 2100
3. The wall is critical to narrowing the river
working group. Buller 2100 sought to understand
to encourage self-flushing of the river.
the flood risk of increased gravel deposits in the
river system. A full copy of the report is included
4. Degradation of the wall leads to a higher
in the attached RMC² strategy ‘Securing the Future
flood risk.
of the West Coast Ports’.
5. Gravel extraction or dredging methods
The hydrology report, in terms of the port strategy
should be investigated in the port and lower
work, was scoped to:
river areas.
1. Understand the commercial implications on
6. A targeted dredging regime around the wall is
current and future port operations.
required to reduce this risk (dredging elsewhere
on the Buller will not materially improve the
2. Understand the sustainability of new port
situation with respect to the wall).
investment to ensure new assets were not
undermined by river currents, particularly
7. That gravel removal at Organ’s Island is:
around the ex Holcim and Bathurst Coal
a. Unlikely to minimise or reduce dredging
wharves and seawalls.
requirements downstream around the port
3. Test the hypothesis that removing gravel at
and at the river mouth.
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Organ’s Island (upstream of the port operation),
b. Likely to increase flood risk downstream if
RMC
would reduce the dredging requirement around
too much gravel is removed, thus reducing
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the port and at the river mouth.
the overflow into the Orowaiti area.
The key findings of the report, identified that the
The following recommendations were made to local
impacts of the port strategy are:
government officials as a result of this study:
1. The half tide wall (wall) opposite the Holcim
Recommend that BDC investigates gravel extraction
and Bathurst wharves, has increased gravel
methods for the half tide wall.
build up with is redirecting the river flows
towards the wharves, associated seawalls, and
Recommend that the commercial negotiations for
ultimately the township of Westport.
the fishing sector and HMS sector gives consideration
to the gravel removal and ongoing dredging
requirements for a safe and sustainable river system.
Recommend that WCRC, BDC and Buller 2100
work collaboratively to solve the flooding and
sustainability risks including the consideration
of funding models.
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Growing the Buller and West Coast
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Enabling growth and creating
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resilience for Buller and the
West Coast
The prize that a sustainable
The Port Strategy outlines the need for protecting
Kawatiri operation unlocks for the
the existing fishing fleet and attempting to grow
Buller, and the wider region, is
shipping through Buller by exporting heavy mineral
game changing.
sands (refer to the Protect : Optimise : Grow diagram
below). There has been significant progress made
in past 12 months to implement the strategy with
multiple key components currently being executed
The lease of Holcim wharf to West Coast Bulk
as planned.
Logistics Ltd enables bulk exports to be exported
This strategy continues to gather momentum with
in 2021 and the initiative continues to make strong
funding provided by IRG and the PDU, as well as
progress towards operationalisation.
significant private investment, to establish a fishing
The following four pages outline the economic
precinct and a bulk precinct that any region would
benefits of growing our fishing and bulk sectors
be proud of.
in the region. The opportunities for the region on
Fishing is established and is growing with expansion
the back of executing the ports strategy is significant.
of Talley’s processing in Westport.
The ports strategy also outlined a plan to create
greater natural and commercial resilience for the
region and states the important of the Buller and
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associated assets in this regard.
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Economic Impact Assessment (from The Port Strategy)
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A full economic assessment was completed by Kel Sanderson in two parts:
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1.
Current state.
2.
Future state based on establishing a coast wide FMS sector.
This provides an important lens into the potential value created through a cohesive
West Coast Transport & Logistics Strategy and is summarised below. A full report is
attached at Appendix A.
CURRENT STATE SUMMARY
FUTURE STATE SUMMARY
The overall picture shows a considerable level of
At the Minerals Forum in May 2018, Minister for
change in the economy of the West Coast Region
Energy and Resources Hon Dr Megan Woods said
between 2000 and 2018. It is generally unusual to
“There is sky-rocketing demand around the world
see two main resource-based industries like forest
for minerals which are used in clean-tech and which
& wood, and mining to reduce in economy share to
can aid our transition to a low carbon economy.
such an extent.
That demand represents a real opportunity for
In the year 2000, these industries had 12% of the
New Zealand.” These ‘green’ minerals are needed
Region’s employment and produced 30% of the
for batteries, wind turbines, solar panels, LEDs
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and hybrid cars.
RMC
Region’s value added. By 2018, the two industries
employed just 7% of the Region’s employment and
Minerals which fall into these groups and are present
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generated 13% of the Region’s value added.
on the West Coast include Garnet, Rare Earth
These are certainly a weak part of the Region’s
Elements (REEs) and Ilmenite. Work which has been
current economy, and presumably there are some
done to determine the size of the deposits, and
initiatives possible to recover or replace them.
potential annual production indicates that there
is a potential to sustainably produce 600,000 tonnes
Protect and Grow Fishing
per year.
There is also the potential, presumably for a greater
Establish a 600,000 tonne
proportion of the fish and seafood offshore of the
HMS industry
West Coast, to be caught and processed by the
people on the West Coast.
This industry would mine, process and export
200,000 tonnes of industrial garnet, and 400,000
In a 2017 report on “The economic contribution of
tonnes of ilmenite, mined and extracted as a
commercial fishing to the New Zealand economy”,
product complementary with the garnet from
prepared for the New Zealand commercial fishing
the West Coast deposits.
industry by BERL, the employment in harvesting in
FMA7 was shown to be 966 FTEs in 2015.
This section estimates the impacts of the full
industry, including the initial Stage One 100,000
This contrasts with the level shown as 19 to 34 FTEs
tonnes garnet operation, joined by a further
in the StatisticsNZ data we have in the table above.
100,000 tonnes of garnet and 400,000 tonnes
The 966 FTEs involved in commercial fishing in FMA
of high-grade ilmenite.
7 presumably mostly are domiciled in other Regions,
such as Nelson-Marlborough. Talleys of Motueka
utilise port facilities at Westport, and it may be
possible to increase the employment based there
in certain conditions.
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Operations on the West Coast
Export earnings
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On a similar basis to the estimates for Stage One
The expected export return from the mineral sand
above we now estimate the economic impacts of the
exports, being of high grade is that an average return
established industry operating at a level of 600,000
of US$150 to US$200 per tonne will be achieved.
tonnes per year.
This is currently equivalent to NZ$240 to NZ$320
per tonne.
Garnet and ilmenite mining, processing
and export operations:
This implies that the value of exports from the
600,000 tonnes exported by this industry would be
Employment
100 FTEs, permanent
worth NZ$144 million to $192 million per year.
Indirect employment 80+ FTEs, permanent
This implies that the operation of the production
and processing industry will increase permanent
Recommend that the PGF approve the funding
employment on the West Coast by at least 180
application to renew the fishing jetties to protect
fulltime employed.
and enable growth in the fishing sector.
Taking account of the different levels of production
Recommend that the ‘Establishment Board’ to create
cost per tonne of the initial garnet plant, the
a West Coast Transport & Logistics strategy be stood
later garnet plant(s) and the ilmenite plant, the
up and funded to attempt to maximise the economic
expectation is that the total direct production cost
benefit of the HMS sector.
will be of the order of $30 million per year. Taking
account of the value chain impact the total addition
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to annual expenditure on the West Coast is expected
to be $60 to $70 million.
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These volumes are thought to be conservative in terms of both the resource available and the market
opportunities.
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Capital expenditure on the West Coast:
Garnet processing plant (200,000 tonnes)
Capital cost:
$100 million
Construction employment
30 FTE jobs over three years
Indirect employment
4 FTE jobs over three years
Ilmenite processing (400,000 tonnes)
Capital cost:
$35 million
Construction employment
20 FTE jobs over one year
Indirect employment
16 FTE jobs over one year
Storage / portside
Capital cost
$20 million
Construction employment
10 FTE jobs over one year
Indirect employment
8 FTE jobs over one year
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The indications are that the total capital expenditure to develop the mineral sands industry on the West Coast
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would be about $155 million. This would employ directly 30 FTE jobs over three years another 30 FTE jobs over
one year, which is a total of the equivalent of 30 FTE jobs over four years. This direct employment would generate
indirect or value chain employment of about 24 FTE jobs over four years, giving a total increase of the equivalent
of 54 FTE jobs over four years.
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Resilience & Lifelines strategy (from The Port Strategy)
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Natural disaster resilience
Essential assets
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The resilience and lifeline team at WCRC do not
The ports need to be viewed as a system, rather than
currently factor in the ports of Westport and
just a wharf or lagoon. The critical elements of the
Greymouth as key lifeline assets due to their
port system in relation to resilience and lifelines are:
perceived poor condition and uncertain futures.
1. Seawalls.
This presents a serious risk in the resilience plan
2. River access (dredging).
for the West Coast, particularly in terms of natural
disaster, given the precarious nature of the roads
3. Wharves that are capable of berthing large ships
and rail connecting the West Coast to the rest of
and offloading/loading cargoes and Pax.
New Zealand. In the author’s opinion, the West Coast
4. Road and rail access to berths is ideal including
ports must play a key role in providing much need
marshalling land.
resilience for the wider region.
5. Safe passage from the sea to the wharves
For an isolated region at risk from the Alpine Fault,
including navigation and marine services.
sea transport is essential.
There are limited credible options available at
Commercial resilience
present with the following seen as priorities:
1. Holcim wharf is by far the most resilient and
The closure of main roads such as Arthur’s Pass,
valuable wharf to achieve sizeable shipping
and the semi-regular disruption to rail services
on the West Coast presently. The issue with
(the latest being October 2019), presents significant
the wharf is the Buller River bar access which
business disruption and economic impact on that
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requires ongoing dredging. This is a critical
RMC
largest West Coast exporters; Westland Dairy and
element which must be maintained in order
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Bathurst Resources.
to achieve resilience.
Both Westland Dairy, and Bathurst Resources, have
2. The Greymouth bar is self-flushing, but the
sought contingency plans to utilise ports as an
general-purpose wharf is in very poor condition
alternative, but again, due to the perceived condition
and not in itself a resilient structure.
of assets and their future, have struggled to achieve
a robust alternative to road and rail.
Recommend that the recommended strategies to
maintain the Buller River are executed to not only
Opportunity
present commercial opportunities, but to underpin
a resilience strategy that involves a credible sea
Through the renewal of fishing jetties, and the
option for the West Coast.
adoption of the strategies recommended in this
study, the ports will provide the confidence to WCRC
Recommend that the general-purpose wharf in
and the commercial exporters, to have a credible and
Greymouth is maintained to its current state as
reliable plan to utilise ports when it is required.
a secondary option to Holcim wharf.
Accordingly, the strategies encourage increased
Recommend that WCRC, Westland Dairy, Bathurst
involvement from WCRC to achieve natural disaster
Resources and other West Coast entities establish a
resilience, and it is recommended that Westland
clear resilience plan to utilise the assets at Westport
Dairy and Bathurst contribute to the ‘Establishment
and Greymouth if a natural disaster occurs and road
Board’ costs to enable their alternative sea
and rail is not an option.
logistics options.
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Dredging growth opportunities
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Outer region contracts
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The Kawatiri’s small size compared to its competitors
presents a unique value proposition for dredging at
There is a lot of work to do before
smaller NZ ports.
BDC could achieve the required
Port of Nelson, Eastland Port, CentrePort, Port of
levels of service to enter into
Oamaru and potentially others all have a need for
long term contracts. However, by
boutique and small scale dredging.
following the path outlined in this
Some of this work consists of capital dredging
paper outer port work is a real
(one off assignments that are required to ‘reset’
potential option from later this year.
a port) where others require annual or biannual
maintenance dredging thus providing a longer term
revenue stream.
Partnership approach
Key enablers for outer
region contracts
Previous contracts have been adhoc and a one-sided
‘contractor agreement’ arrangement. This did not
Port of Nelson and BDC had a robust debrief
serve BDC or Nelson well on the last contract.
following the recent work. For Nelson, the dredge is
If outer port work is to be pursued, a longer term
important to them and they are keen to engage for a
‘partnership’ type contract is required that provides
long term contract. However, they must be reassured
the certainty and revenue for BDC, and the reliability
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of its reliability and professionalism before doing so
RMC
and professionalism for the client.
citing recent reliability issues and crewing issues.
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Both Port of Nelson and Eastland port are keen
There is a lot of work to do before BDC could achieve
to enter into such negotiations. There is potential
the required levels of service to enter into long term
that the two annual maintenance contracts at those
contracts. However, by following the path outlined in
ports are tied together in one ‘ports agreement’
this paper outer port work is a real potential option
which provides increased surety for all parties.
from later this year.
This is the model that is applied by Dutch Dredging
at larger ports.
The contract must also enable BDC to look after its
own port interests at all times. This may require a
negotiation around timings at outer ports, as well
as contractual provisions to enable the vessel to
return to Buller for works if required at short notice.
These are standard approaches in the industry.
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S E CT I O N T H R E E
BUSINESS PLAN
Leveraging our
opportunities
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Capital plan
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Vessel works
Working capital
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1. Immediate works $200,000. These can be
Based on all scenarios, there will not be a working
funded by revenues from the government
capital requirement for dredging (noting that
contracts throughout the work.
there wouldn’t be any dredging if sand exports
2. 2022 slipping estimated $2.2m Some of these
didn’t occur).
works can be funded from operating surpluses
If it was decided to continue outer port work (without
but may require an investment from BDC.
the need for large scale work in Westport), there may
These works would only be completed if the
be a requirement to top the operation up from time
growth opportunities outlined happen.
to time depending on the success of each individual
By doing so, the works would be repaid
job (similar to that experienced to date).
quickly through operating revenues.
The fishing fleet will not sustain dredging operations.
A full list of works has been created by the Port
Manager, in consultation with the dredging crew
and SGS. An independent SGS report is appendix B.
The costs are estimates only. Thorough assessments
and quotes from industry professionals are required
and recommended before any major works are
carried out.
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Financial model
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Cashflow model
Key points to note for the model:
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To fully understand the cash implications of the
• The model has been prepared on a
dredging operation, a cashflow model has been
pre-tax basis.
created based on the BDC budget. Maintenance
• All calculations and assumptions are detailed
provisions as outlined in this paper have also been
on the “Assumptions” worksheet.
added. This approach was taken (rather than a Profit
and Loss) so cash requirements from council are
• With the exception of items relating to
clearly understood.
additional out of port dredging work, revenues
and expenses are as per the draft Budget
To help understand the different phases, the model
provided to us on 10 March.
enables the user to select outer port work or remove
it to understand how sustainable the operation is. In
•
A complete reliance has been put on the budget
summary, the model shows:
data provided by BDC. General comments:
1. The annual operating budget of the dredge
• No dredging income has been budgeted
with a full time crew is approximately $1.7m
in 2021/22 (with the exception of the Govt
if it remains in the Buller. This scenario would
work). However, all costs appear to have
only occur if sands exports were to occur.
been allowed for - fuel, crew etc so the
Revenues from these activities would be
model is showing a pessimistic outcome.
approximately $2.6m per year. Therefore,
•
Additional operating costs are added for
the Buller dredging business under a sands
outer port work. In time, some of these may
export model is profitable and sustainable.
prove to be double ups.
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2. Outer Port work (based on BDC budget ratios)
With respect to the additional out of port the
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costs approximately $360,000. If revenues are
following additional costs on the ratio of budgeted
contracted at $1m per year (which is the request
costs to budgeted revenue:
from Nelson and Gisborne), this work is also
•
Fuel: 11.6% of the additional revenue
profitable and sustainable.
•
R&M: 7% of the additional revenue (note this
3. BDC does not have chase outer port work to
excl. slip charges)
create a sustainable business model.
•
Other Operating Costs: 2.7% of additional
4. Outer Port work on its own is marginal and
revenue
should be carefully considered. It will not
sustain a full time crew.
The 2019 Nelson campaign was reviewed and noted
there are other out of port specific costs for the likes
Extracts from the model as summarised above
of mobilisation, surveys, crew transfers, port charges
are in the Appendices.
etc. These specific costs accounted for 14.7% of
the revenue for that campaign so these have been
applied to this model.
Crew costs are assumed to be fixed - so no further
costs are added for the out of port work.
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Contractual positions
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Legal advice
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Several dredging contracts were reviewed
Examples of work
as part of this strategy including the existing
•
Advising Lyttelton Port Company on a range of
Nelson/BDC version.
development, transport, logistics, relationship
To gain a deep understanding of the pitfalls of
and procurement arrangements (including
dredging contracts, the services of Chris Dann,
dredging works; and vessel, crane and
Partner Anthony Harper, were used to discuss the
container handling equipment procurement
operation and potential contracts (particularly
(construction, purchase, hire and charter)).
outer port work).
•
Acting for a number of Ports in preparing and
Chris’ in-house experience in the UK as Corporate
negotiating container terminal, depot services
Legal Manager at Exel Plc, then the world’s largest
and stevedoring/marshalling agreements with
logistics company, provided him with a commercially
shipping lines and other parties.
pragmatic approach and an in-depth understanding
•
Advising CentrePort in relation to the
of the shipping and logistics industry.
establishment of its inland container terminal
He has continued to develop this expertise and
in Wanganui and on a range of services and
is now regarded as one of the country’s leading
relationship arrangements (including with
transport and logistics lawyers. Chris is ranked as a
KiwiRail for CentrePort’s “CentreRail” freight
“Leading Individual” in the 2018-2021 Legal 500 Asia
transportation service).
Pacific Guides. In 2020 he was awarded the Chartered
•
Advising Southland District Council on both
Institute of Logistics and Transport’s Communication
/
template and bespoke procurement contracts
RMC
Award for his contributions to the sector.
for services and minor works.
2
Chris heads Anthony Harper’s corporate advisory
•
Advising Southland District Council on the
team and has over 20 years’ of experience in
procurement process and approach and
commercial contracts, procurement, manufacturing,
regulatory issues and implications in relation
supply and distribution, corporate structuring
to contracts for community services, including
and governance, joint ventures and mergers
under the Local Government Act and Local
and acquisitions.
Authorities (Members’ Interests) Act 1968,
following a service delivery review under s17A
of the LGA.
•
Lead advisor to the Ministry of Business,
Innovation and Employment in relation to
the domestic and international procurement
of petroleum reserves for the New Zealand
Government, including tendering, procurement
and probity advice and documentation,
tender evaluation, and contract drafting
and negotiation.
Chris Dann
Partner | Head of the Corporate Advisory team
+64 3 964 5835
+64 27 672 8721
[email address]
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Legal approach
S REVIEW - DETERMINING THE FUTURE OF BULLER DREDGING
Chris’ advice has been provided to management
One advantage of the FIDC form of contract is
in full, however the following is important for
that has the same ‘look and feel’ as a standard
the strategy:
construction contract (an “Appendix” of specific
1. First, we think that there are two general
details, bespoke “Particular Conditions” if required
‘approach’ considerations:
and a set of “General Conditions”), so we expect that
Council staff will find it relatively user friendly, yet it
1.1. We recommend a relational/”partnering”
is specifically designed for dredging (both capital and
approach with the client in order to
maintenance dredging, as well as reclamation work
minimise the risk of surprises which can
and ancillary construction) and somewhat simpler
lead to risk and dispute. Two aspects are
than a standard form construction contract.
particularly important:
(a) proper definition of the full scope of
works (explained further below); and
(b) identifying and properly allocating
risks to the party best placed to address
those risks (including, where that
party is the Council, ensuring that the
Council is properly remunerated for
those risks).
/ RMC
1.2. The form of contract should be appropriate
for dredging services. In our view, an
2
industry standard construction contract
(e.g. NZS 3910 – 3916 suite) is not
appropriate for dredging services.
There are considerations which are unique
to dredging operations that are not
addressed in a construction contract (and
vice versa). We suggest that the Council
considers either:
(a) preparing a template dredging contract
which is specifically designed for
dredging services by the Council using
Kawatiri; or
(b)
uses the standard form “FIDIC® Form
of Contract for Dredging and
Reclamation Works”.
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Business structure
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Ownership
S REVIEW - DETERMINING THE FUTURE OF BULLER DREDGING
The review considered these four scenarios:
When considering the streams of potential work,
1.
Status Quo
the recommended structure is quite simple:
2. Transfer to CCO (Buller Holdings?)
1. BDC retains 100% ownership.
3. Partnership (other Ports/Government)
2. The crew is hired full time (pending work)
and is locally based.
4. Opco/AssetCo
3. Outer port contracts are long term and
Once the staged approach was fully understood,
partnerships, not service agreements.
it became apparent that the Kawatiri:
4. Third party experts are engaged formally
1. Is a strategic asset for the Buller.
for engineering assessments and works.
2. Can be sustainable.
This model is simple, gives the region full control
3. Is a long term option (doesn’t need replacing
over its strategic assets, generates local high paid
for many years).
jobs, and creates win win scenarios for partner ports.
4. Has value for other ports.
5. Requires local institutional knowledge
to operate effectively and safely.
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The following outlines some key risks and how
Operational
this strategy is seeking to mitigate/minimise or avoid
S REVIEW - DETERMINING THE FUTURE OF BULLER DREDGING
the risks.
Currently, the part time contracted crew is expensive
and hard to keep current and motivated. There is low
Financial
institutional knowledge of the operation as a whole
and this puts reliance on third parties who may not
Currently, the operation loses money, capital
have our best interests at heart.
requirements are high (slipping), it is rate payer
Additionally, the current operation lacks continuity
funded, and external contracts are not reliably
and is not capable of maintaining full operability
profitable.
at Buller for bulk shipping.
The staged approach as recommended ensures:
The staged approach:
1. Short term maintenance is paid by contracted
1. Creates an operating model that will sustain full
works from government.
time Westport based crews.
2. 2022 major works is defined but not committed
2. The funds to manage the business
to until there is confirmed work in Buller
professionally.
(sands exports)
3. Will rebuild institutional knowledge.
3. If sands exports happens, the operating model
is profitable and sustainable and creates
Reputational
enormous value for Buller and the region.
4. Outer port contracts are not entered into unless
External contracts have been a mix of successes
/
and the value proposition of the Kawatiri diminishes
RMC
they are strategic/partnership in nature, long
term (guaranteed revenue) and the council can
with bad experiences (like the last Nelson contract).
2
commit to major works on the vessel.
Outer port work may reduce if the operation is not
reset into a professional format.
5. The self funding staged approach removes
the need for rate payer subsidies for
The staged approach:
dredging operations.
1. Commits the dredge to work only if it is fit for
purpose. This includes the vessel, equipment,
operation, crew and management.
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Health and Safety
Capital
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Dredging operations are specialised activities
There has been concern that the capital required
that require professionals. Casual crewing increases
to sustain operations is unachievable due to low
the H&S risk profile through inconsistent work
revenues and high risks.
at multiple ports and a lack of currency.
There is limited or no appetite from council to
Direct oversight on outer region contracts is
commit further capital under the existing model.
limited and largely outsourced to the master
This staged approach:
(who is a contractor).
1. Generates the income required to sustain
Deferred maintenance of the vessel increases
operations.
the H&S risk profile.
2. Does not require rate payer funds.
This staged approach:
3. Is largely self funding, and if not entirely,
1. Ensures all systems are safe and sustainable
any committed funds can be repaid quickly.
for each stage of work.
2. Focusing on work creates the need for a full
time, dedicated and local crew.
3. Oversight becomes less important with a full
time employed crew with a vested interest in
the operation.
/
4. The plan does not defer maintenance, it ensures
RMC
it is on time and fully funded.
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S E CT I O N FO U R
OUTCOMES
Taking action
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Summary
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There is now a clear plan on how to create a
sustainable dredging operation for Buller:
S REVIEW - DETERMINING THE FUTURE OF BULLER DREDGING
1. Complete all government works as outlined.
2. In parallel, start long term negotiations
with outer ports to understand the position.
Engage professional engineers to give a full
assessment of major works needed in 2022.
3. Understand the export sands opportunity.
If that is confirmed as a start:
a. Hire a full time crew and start
building institutional knowledge
across the operation.
b. Book the vessel in for major works
as defined by experts.
4. If export sands does not happen:
a. Reassess the sustainability of operations
and major works requirements before
signing any outer port contract.
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Recommendations
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Immediate focus of government
Outer port contracts
S REVIEW - DETERMINING THE FUTURE OF BULLER DREDGING
funded works
Recommend that the FIDC contract form is adopted.
Following a thorough survey of the vessel by SGS
Recommend that outer port contracts are long term
(qualified company providing professional services),
and partnerships, not service agreements.
and discussions with the current contract crew,
Recommend that Chris Dann is engaged to form a
these works can safely be completed by the Kawatiri
robust contract for works if this option is pursued.
without major works or capital being spend on
the vessel.
Recommend that no outer port contracts are
Recommend
signed until the export sands business is understood
that a casual crew is contracted
(to underpin major works in 2022).
immediately for works.
Recommend that BDC commits up to $200,000
Structure
for immediate maintenance works as recommended
by SGS as follows:
Recommend that BDC retains 100% ownership
of the Kawatiri.
1. Commission a qualified marine electrical
engineer to understand the sychronisation of
Recommend that a full time crew that is based
the gensets. From this, a program of works will
locally is hired (pending the export sands outcome).
be created for next year’s slipping to confirm the
Recommend that third party experts are engaged
capital requirements and would potentially fix
formally for engineering assessments and works.
the intermittent bow thruster issue.
/ RMC
2. Fix all hand rails which are currently rusted
(non skilled labour)
2
3. Review the ventilation and alarm arrangements
in the engine room (through SGS)
4. Lift the floor plates in the engine room, clean
and make good any maintenance under the
floor. This also provides clear access to assess
the sea water pipes and hull ahead of next
year’s slip.
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APPENDICES
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A P P E N D I X A
FINANCIAL
MODEL
KAWATIRI DREDGE
CASH FLOW MODEL
Notes:
1 Unless stated otherwise, values shown within this file are exclusive of GST and presented in NZD.
2 Cash flows are presented in nominal terms (i.e. values include assumed general price / cost inflation over time).
3 Cel s highlighted in orange represent inputs / assumptions that may be manual y altered.
No other values should be altered without careful consideration, as they general y rely on supporting calculations / formula.
4 Cash flows are presented on a before tax basis. The impact of income tax (if any) should be separately considered.
5 For supporting calculations and assumptions refer to the worksheet 'Assumptions'.
Select Scenario
Budgeted Dredging
Included
Budgeted Government Related Work
Included
Additional Out of Port Dredging
Excluded
Cash Flows
1
2
3
4
5
6
7
8
9
10
Assumption Ref.
Source
2021/22
2022/23
2023/24
2024/25
2025/26
2026/27
2027/28
2028/29
2029/30
2030/31
1) Cash flows to repair / extend life of dredge
Dredge Slipping
A1
Draft Budget
( 2,200,000)
Contribution from interested third party
A2
Draft Budget
-
Total cash flows to repair/extend life of dredge
-
( 2,200,000) -
-
-
-
-
-
-
-
2) Cash flows from operating activities
Revenue
Per Draft Budget
Dredging Income
A3
Draft Budget
3 00,000 2
,601,000 2
,653,020 2
,703,427 2
,752,089 2
,801,627 2 ,849,254 2 ,897,692 2 ,946,952 2 ,994,104
Government Related Work
A4
Draft Budget
1
,800,000 2 04,000 -
-
-
-
-
-
-
-
Additional Out of Port Work
Additional Out of Port Dredging Work
A5
Refer A5
-
-
-
-
-
-
-
-
-
-
Total Revenue
2
,100,000 2
,805,000 2
,653,020 2
,703,427 2
,752,089 2
,801,627 2 ,849,254 2 ,897,692 2 ,946,952 2 ,994,104
Operating Expenses
Per Draft Budget
Crew Costs
A6
Draft Budget
( 1,111,489) ( 1,068,415) ( 1,088,781) ( 1,109,028) ( 1,129,438) ( 1,150,680) ( 1,171,640) ( 1,193,228) ( 1,215,710) ( 1,237,917)
Fuel
A11a
Draft Budget
( 307,122) ( 302,554) ( 308,605) ( 314,469) ( 320,129) ( 325,892) ( 331,432) ( 337,066) ( 342,796) ( 348,281)
Repairs and Maintenance
A10a
Draft Budget
( 197,835) ( 181,392) ( 185,019) ( 588,535) ( 191,928) ( 195,383) ( 598,705) ( 202,083) ( 205,518) ( 608,806)
Contractor Depth Sounding
A7
Draft Budget
( 9,000) ( 9,180) ( 9,364) ( 9,542) ( 9,713) ( 9,888) ( 10,056) ( 10,227) ( 10,401) ( 10,567)
Insurance
A8
Draft Budget
( 25,000) ( 25,500) ( 26,010) ( 26,504) ( 26,981) ( 27,467) ( 27,934) ( 28,409) ( 28,892) ( 29,354)
Other Operating Costs
A9a
Draft Budget
( 68,268) ( 69,633) ( 71,026) ( 72,376) ( 73,678) ( 75,005) ( 76,280) ( 77,576) ( 78,895) ( 80,158)
( 1,718,714) ( 1,656,674) ( 1,688,806) ( 2,120,453) ( 1,751,869) ( 1,784,315) ( 2,216,047) ( 1,848,589) ( 1,882,212) ( 2,315,084)
Additional Out of Port Work
Fuel for Additional Out of Port Work
A11b
% of Revenue
-
-
-
-
-
-
-
-
-
-
Repairs and Maintenance - Additional Out of Port Work
A10b
% of Revenue
-
-
-
-
-
-
-
-
-
-
Mobilisation, maps, surveys, crew transfers etc - Out of Port
A12
% of Revenue
-
-
-
-
-
-
-
-
-
-
Other Operating Costs - Additional Out of Port Work
A9b
% of Revenue
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Total Operating Expenses
( 1,718,714) ( 1,656,674) ( 1,688,806) ( 2,120,453) ( 1,751,869) ( 1,784,315) ( 2,216,047) ( 1,848,589) ( 1,882,212) ( 2,315,084)
Total cash flows from operating activities
3
81,286 1
,148,326 9
64,214 5
82,974 1
,000,220 1
,017,312 6
33,208 1 ,049,103 1 ,064,740 6
79,020
Total Cash Flow in Year (Before Tax)
3
81,286 ( 1,051,674) 9
64,214 5
82,974 1
,000,220 1
,017,312 6
33,208 1 ,049,103 1 ,064,740 6
79,020
Cumulative Cash Flow (Before Tax)
3
81,286 ( 670,388) 2
93,826 8
76,800 1
,877,021 2
,894,333 3 ,527,540 4 ,576,643 5 ,641,384 6 ,320,404
KAWATIRI DREDGE
CASH FLOW MODEL
Notes:
1 Unless stated otherwise, values shown within this file are exclusive of GST and presented in NZD.
2 Cash flows are presented in nominal terms (i.e. values include assumed general price / cost inflation over time).
3 Cel s highlighted in orange represent inputs / assumptions that may be manual y altered.
No other values should be altered without careful consideration, as they general y rely on supporting calculations / formula.
4 Cash flows are presented on a before tax basis. The impact of income tax (if any) should be separately considered.
5 For supporting calculations and assumptions refer to the worksheet 'Assumptions'.
Select Scenario
Budgeted Dredging
Included
Budgeted Government Related Work
Included
Additional Out of Port Dredging
Included
Cash Flows
1
2
3
4
5
6
7
8
9
10
Assumption Ref.
Source
2021/22
2022/23
2023/24
2024/25
2025/26
2026/27
2027/28
2028/29
2029/30
2030/31
1) Cash flows to repair / extend life of dredge
Dredge Slipping
A1
Draft Budget
( 2,200,000)
Contribution from interested third party
A2
Draft Budget
-
Total cash flows to repair/extend life of dredge
-
( 2,200,000) -
-
-
-
-
-
-
-
2) Cash flows from operating activities
Revenue
Per Draft Budget
Dredging Income
A3
Draft Budget
3 00,000 2
,601,000 2
,653,020 2
,703,427 2
,752,089 2
,801,627 2 ,849,254 2 ,897,692 2 ,946,952 2 ,994,104
Government Related Work
A4
Draft Budget
1
,800,000 2 04,000 -
-
-
-
-
-
-
-
Additional Out of Port Work
Additional Out of Port Dredging Work
A5
Refer A5
1
,000,000 1
,020,000 1
,040,400 1
,061,208 1
,082,432 1
,104,081 1 ,126,162 1 ,148,686 1 ,171,659 1 ,195,093
Total Revenue
3
,100,000 3
,825,000 3
,693,420 3
,764,635 3
,834,521 3
,905,707 3 ,975,417 4 ,046,377 4 ,118,612 4 ,189,196
Operating Expenses
Per Draft Budget
Crew Costs
A6
Draft Budget
( 1,111,489) ( 1,068,415) ( 1,088,781) ( 1,109,028) ( 1,129,438) ( 1,150,680) ( 1,171,640) ( 1,193,228) ( 1,215,710) ( 1,237,917)
Fuel
A11a
Draft Budget
( 307,122) ( 302,554) ( 308,605) ( 314,469) ( 320,129) ( 325,892) ( 331,432) ( 337,066) ( 342,796) ( 348,281)
Repairs and Maintenance
A10a
Draft Budget
( 197,835) ( 181,392) ( 185,019) ( 588,535) ( 191,928) ( 195,383) ( 598,705) ( 202,083) ( 205,518) ( 608,806)
Contractor Depth Sounding
A7
Draft Budget
( 9,000) ( 9,180) ( 9,364) ( 9,542) ( 9,713) ( 9,888) ( 10,056) ( 10,227) ( 10,401) ( 10,567)
Insurance
A8
Draft Budget
( 25,000) ( 25,500) ( 26,010) ( 26,504) ( 26,981) ( 27,467) ( 27,934) ( 28,409) ( 28,892) ( 29,354)
Other Operating Costs
A9a
Draft Budget
( 68,268) ( 69,633) ( 71,026) ( 72,376) ( 73,678) ( 75,005) ( 76,280) ( 77,576) ( 78,895) ( 80,158)
( 1,718,714) ( 1,656,674) ( 1,688,806) ( 2,120,453) ( 1,751,869) ( 1,784,315) ( 2,216,047) ( 1,848,589) ( 1,882,212) ( 2,315,084)
Additional Out of Port Work
Fuel for Additional Out of Port Work
A11b
% of Revenue
( 116,322) ( 118,649) ( 121,022) ( 123,442) ( 125,911) ( 128,429) ( 130,998) ( 133,618) ( 136,290) ( 139,016)
Repairs and Maintenance - Additional Out of Port Work
A10b
% of Revenue
( 69,739) ( 71,134) ( 72,557) ( 74,008) ( 75,488) ( 76,998) ( 78,538) ( 80,108) ( 81,711) ( 83,345)
Mobilisation, maps, surveys, crew transfers etc - Out of Port
A12
% of Revenue
( 147,233) ( 150,178) ( 153,181) ( 156,245) ( 159,370) ( 162,557) ( 165,808) ( 169,124) ( 172,507) ( 175,957)
Other Operating Costs - Additional Out of Port Work
A9b
% of Revenue
( 26,772) ( 27,307) ( 27,853) ( 28,410) ( 28,979) ( 29,558) ( 30,149) ( 30,752) ( 31,367) ( 31,995)
( 360,066) ( 367,268) ( 374,613) ( 382,105) ( 389,747) ( 397,542) ( 405,493) ( 413,603) ( 421,875) ( 430,313)
Total Operating Expenses
( 2,078,780) ( 2,023,942) ( 2,063,419) ( 2,502,559) ( 2,141,616) ( 2,181,857) ( 2,621,540) ( 2,262,192) ( 2,304,087) ( 2,745,396)
Total cash flows from operating activities
1
,021,220 1
,801,058 1
,630,001 1
,262,077 1
,692,905 1
,723,851 1 ,353,877 1 ,784,186 1 ,814,524 1 ,443,800
Total Cash Flow in Year (Before Tax)
1
,021,220 ( 398,942) 1
,630,001 1
,262,077 1
,692,905 1
,723,851 1 ,353,877 1 ,784,186 1 ,814,524 1 ,443,800
Cumulative Cash Flow (Before Tax)
1
,021,220 6
22,278 2
,252,279 3
,514,356 5
,207,262 6
,931,112 8 ,284,989 1 0,069,175 1 1,883,699 1 3,327,500
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A P P E N D I X B
SURVEYOR
REPORT
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A P P E N D I X C
ANTHONY
HARPER
LEGAL ADVICE
MEMORANDUM
To
Ray Mudgway, RMC2 Limited and to Buller District Council
From
Chris Dann, Anthony Harper
Subject
KAWATIRI DREDGE - CONTRACTING APPROACH, RISKS AND ISSUES
Date
17 March 2021
1.
We understand that RMC2 Limited has been engaged by the Buller District Council to
undertake a review into the Council's dredging operations. The Council provides dredging
services, using the Council owned
Kawatiri dredge, for other NZ ports from time to time
under contract, in addition to the
Kawatiri being required to dredge the Buller River.
2.
In connection with RMC2's review, you have asked us to outline some high level key
considerations for dredging contracts in light of our experience of the same in our work for
other ports.
Approach
3.
First, we think that there are two general 'approach' considerations:
3.1. We recommend a relational/"partnering" approach with the client in order to minimise
the risk of surprises which can lead to risk and dispute. Two aspects are particularly
important:
(a)
proper definition of the full scope of works (explained further below); and
(b)
identifying and properly allocating risks to the party best placed to address those
risks (including, where that party is the Council, ensuring that the Council is
properly remunerated for those risks).
3.2. The form of contract should be appropriate for dredging services. In our view, an
industry standard construction contract (e.g. NZS 3910 – 3916 suite) is not
appropriate for dredging services. There are considerations which are unique to
dredging operations that are not addressed in a construction contract (and vice versa).
We suggest that the Council considers either:
(a)
preparing a template dredging contract which is specifically designed for
dredging services by the Council using
Kawatiri; or
(b)
uses the standard form "FIDIC® Form of Contract for Dredging and Reclamation
Works".
One advantage of the FIDC form of contract is that has the same 'look and feel' as a
standard construction contract (an "Appendix" of specific details, bespoke "Particular
Conditions" if required and a set of "General Conditions"), so we expect that Council
staff will find it relatively user friendly, yet it is specifically designed for dredging (both
capital and maintenance dredging, as well as reclamation work and ancillary
construction) and somewhat simpler than a standard form construction contract.
Scope of works
4.
As noted above, proper upfront definition of the scope of the required works is crucial – to
identify risks, properly price the works and properly plan the execution of the works. Scope
issues include the following:
4.1.
Soils information: Good quality and comprehensive information on the nature and
extent of the soils to be dredged and disposed of is required. Failure to obtain, and
properly take account of the implications of, this information prior to contracting is
likely to lead to delays and additional costs. Consider how much material needs to be
removed (and/or to what depth) and from what areas. Put another way, what is the
CSD-370207-1-14-1
definition of 'success'? Understand where the disposal areas are and any
access/timing issues – how long will it take to sail from the dredging area to the
disposal area?
4.2.
Environmental information: This information will be required in order to obtain the
necessary consents for the works but will also be important to the contractor's ability
to properly scope the works (e.g. tidal information and hydrographic plans).
4.3.
Measurement: It is necessary to specify a method and process for measurement of the
dredging works (including calibration of measurement equipment and supervision and
timing of measurement). Typically there will be 'in' and 'out' surveys at the beginning
and end of the works and interim surveys for payment certificates. Consider whether
there should be defined "tolerances" for the works (relative to the defined scope
requirements) for both payment and completion.
5.
Normally the
design of the works is a matter for the client (called the "Employer" in the
FIDIC form of contract) but if the contractor is to have some design responsibility it is
essential that the Employer’s requirements are described clearly and precisely. The FIDIC
contract Guidance Notes suggest the following relevant considerations:
5.1. the purpose for which the works are required;
5.2. the size, speed and draught of vessels using the relevant harbour/waterway;
5.3. the design storm surge level and wave height and period;
5.4. the earthquake forces to be accounted for;
5.5. the stability criteria; and
5.6. the volume of acceptable over-topping.
Programme for works
6.
Once the overall scope of the works is ascertained, a specific programme for carrying out the
works should be prepared and agreed. Consider the following:
6.1. Usually, efficient and cost effective dredging works requires the contractor to be able
to
work continuously by day and by night. Ideally, the contractor would obtain
contractual assurance that he is able to do that. Consider what might interfere with
continuous works (e.g. shipping) and develop a programme (and a remuneration
model) to mitigate (and/or compensate the contractor for) interruption and
interference.
6.2. Normally the contract will expressly provide for the client ("Employer") to
'take over'
each area in respect of which the dredging work has been completed (i.e. in sections,
rather than the entire programme when all works are completed). Otherwise, the
contractor will effectively be responsible for the maintenance of the dredging work
after completing each section.
6.3. A right for the contractor to be able to influence the scheduling of the dredging
programme, postpone the commencement of a dredging programme and/or suspend
works during a dredging programme, in order to return home as and when necessary
to
attend to "emergency dredging" of the Buller River (or at any other port) to clear
the navigational channel and enable normal shipping operations to safely continue
following a storm or other event.
Timeframes
7.
The contract would normally define a "Commencement Date" and a "Time for Completion"
for the works. Obviously care is needed to ensure those dates/timeframes are achievable,
having regard to the scope and programme factors outlined above. Issues to watch out for
here include:
7.1. When the contractor is entitled to an
extension of time. The FIDIC form of contract set
out a series of "Defined Risks" for which an extension of time is permitted (discussed
in paragraphs 8-9 below). The contractor should consider any other circumstances in
which further time should be allowed for the works (i.e. how might delays arise which
the contractor should not be responsible for?).
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7.2. Any contractual consequences of late completion. The FIDIC form of contract
contemplates
liquidated damages being payable by the contractor, although in our
experience LDs are often successfully resisted/rejected by a contractor.
Defined Risks
8.
The FIDIC form of contract provides for prescribed
"Defined Risks", the implications of which
are placed on the client/Employer. Regardless of the form of contract used, the concept is
important – in what circumstances should the contractor be relieved of liability (including for
delay) and/or be entitled to recover additional costs?
9.
These Defined Risks are typically force majeure type events (i.e. events/circumstances
outside the contractor's control), including:
9.1. "interruptions due to ship movements in excess of those specified in the Contract
Data"
9.2. "climactic or hydrological conditions more adverse than those specified in the Contract
Data"
9.3. Unforeseeable physical obstructions or conditions.
The contractor should consider what other events/circumstances should be client, not
contractor, risks.
Engineer
10.
Just like for construction contracts, it is usual for dredging contracts to make provision for an
"Engineer", often an employee of the client, to be responsible for valuing, certifying and
making determinations in relation to the dredging works. While the Engineer is required to
act promptly and fairly, the contractor may wish to insist upon an
independent expert to fill
this role.
Pricing/remuneration
11.
There are a number of
different pricing models for dredging work, like with construction
works. Examples include:
11.1. lump sum price;
11.2. re-measurement (i.e. a fixed sum, subject to re-measurement at agreed rates);
11.3. cost plus; and
11.4. schedule of rates.
12.
Consider the following different types of rates:
12.1. hourly rate;
12.2. tonnage rate;
12.3. standby rate (when unable to dredge due to Defined Risks or client suspensions (e.g.
for shipping));
12.4. periodic (e.g. daily) layup charge (for extended suspensions where, for instance, it
may be possible to demobilise the crew but not the vessel);
12.5. mobilisation and demobilisation charges.
13.
The selection of the appropriate pricing methodology will depend, among other things, on the
efficiency of the dredging operations, taking account of the likelihood of interruptions,
characteristics of the soils being dredged, location of dumping grounds relative to the
dredging areas, etc.
14.
Other issues for consideration include the following:
14.1.
What other costs may be incurred by the contractor are those costs taken into account
in the remuneration arrangements (either as an additional charge payable by the client
or the risks/costs are factored into the contractor's rates/price). For example:
(a)
consents;
(b)
travel, accommodation, crew shift changes, other crew costs;
CSD-370207-1-14-1
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(c)
port costs (including, wharfage, berthage (including for bunkering), pilotage);
(d)
dumping fees.
14.2. Should the contract include
minimum aggregate charge payable to the contractor for
the dredging works, either for a particular dredging programme or over the term of a
contract if not one-off?
14.3. In the case of a contract for works of long duration, allow adjustment for the
"rise and
fall" in the cost of resources such as labour, materials and fuel. Often such an
adjustment mechanism is linked to an appropriate public index or components of an
index (e.g. CPI)
Payment
15.
When can the contractor render invoices and what are the payment terms? Consider the
following:
15.1. advance payments to fund mobilisation costs;
15.2. periodic interim payments – typically monthly. Payment could also be based on the
achievement of milestones or a schedule of activities to which values are assigned;
15.3. retentions.
Performance security
16.
Will a bank guarantee or other form of performance security be required by the client? If so,
the amount should reduce pro-rata to the sections of work taken over by the client following
completion so that the contractor minimises the cost and risk of the guarantee. Those
guarantee costs also need to be factored into the contractor's pricing.
Liability limits
17.
The contract should include limitations and exclusions on the contractor's liability:
17.1. Any liability for
indirect and consequential loss, loss of profit, loss of contract, loss of
opportunity, and special, exemplary or punitive loss/damage should be entirely
excluded.
17.2. A per event and/or aggregate
liability cap should be included. There is no single right
or wrong answer to the calculation of such limits. A contractor friendly option is for a
limitation to be linked to the total amount paid or payable by the client. At worst,
ensure any limitation is consistent with the amount recoverable (or recovered) under
insurance.
17.3. A defects liability/permitted
claim period should be included. As in construction
contracts, that period is commonly 1 year from completion.
Insurance
18.
We recommend that the Council carefully reviews its current insurance programme
(including, if thought appropriate, consulting with expert brokers) to ensure that the
appropriate type and level of cover is in place for dredging services. It is trite to say that
dredging services are not 'ordinary course' activities for most councils so the unique risks of
dredging services and dredging vessels are unlikely to be addressed with standard liability
policies. Similarly, double insurance should be avoided.
19.
While we are not insurance experts, we understand that relevant insurance cover for
dredging services includes the following:
19.1. Material damage (e.g. a "
hull and machinery" policy).
19.2.
Protection and indemnity (including for oil pollution and wreck removal). A P&I policy
is a form of marine insurance which we understand is different in scope to standard
public liability cover.
19.3. Contract works would normally only be required for marine construction works
involving more than just dredging. For dredging works alone, our understanding is that
contract works insurance is generally not suitable/necessary.
19.4. Professional indemnity cover would only be required if the Council is responsible for
some or all of the design of the dredging works.
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Chris Dann
Partner | Head of the Corporate Advisory team
E: chris.dan
[email address]
P: +64 3 964 5835
M: +64 27 672 8721
Summary
Chris’ in-house experience in the UK as Corporate Legal Manager at Exel Plc, then the world’s
largest logistics company, provided him with a commercially pragmatic approach and an in-depth
understanding of the shipping and logistics industry.
He has continued to develop this expertise and is now regarded as one of the country’s leading
transport and logistics lawyers. Chris is ranked as a "Leading Individual" in the 2018-2021 Legal
500 Asia Pacific Guides. In 2020 he was awarded the Chartered Institute of Logistics and
Transport's Communication Award for his contributions to the sector.
Chris heads Anthony Harper's corporate advisory team and has over 20 years’ of experience in
commercial contracts, procurement, manufacturing, supply and distribution, corporate structuring
and governance, joint ventures and mergers and acquisitions.
Examples of work
•
Advising Lyttelton Port Company on a range of development, transport, logistics, relationship
and procurement arrangements (including dredging works; and vessel, crane and container
handling equipment procurement (construction, purchase, hire and charter)).
•
Acting for a number of Ports in preparing and negotiating container terminal, depot services
and stevedoring/marshalling agreements with shipping lines and other parties.
•
Advising CentrePort in relation to the establishment of its inland container terminal in
Wanganui and on a range of services and relationship arrangements (including with KiwiRail
for CentrePort’s “CentreRail” freight transportation service).
•
Advising Southland District Council on both template and bespoke procurement contracts for
services and minor works.
•
Advising Southland District Council on the procurement process and approach and regulatory
issues and implications in relation to contracts for community services, including under the
Local Government Act and Local Authorities (Members' Interests) Act 1968, following a
service delivery review under s17A of the LGA.
•
Lead advisor to the Ministry of Business, Innovation and Employment in relation to the
domestic and international procurement of petroleum reserves for the New Zealand
Government, including tendering, procurement and probity advice and documentation,
tender evaluation, and contract drafting and negotiation.
CSD-370207-1-14-1
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Ray Mudgway
Managing Director
+ 64 27 575 7993
[email address]
