Ferry replacement project hit government's $1.7b ceiling in June

The project to replace the Interislander ferries hit the government's $1.7 billion cap in June, forcing the removal of value-for-money, sustainability and safety enhancements.A review says the lack of detailed business cases with "no clear economic framework such as a cost-benefit analysis" means the project has limited decision-making transparency, and gives limited confidence it will lead to the best outcome.However, costs were not expected to rise much further and contingency funds were expected to cover any further changes, with Minister for Rail Winston Peters saying the government had taken an approach where it was "easy to remove costs, but very hard to add them"."We have only added cost where the taxpayer and ratepayer was not paying, where it added commercial value, and where we could be assured it would not delay the programme," Peters told RNZ.'All the Crown funding is required to deliver the programme'Documents proactively released by Ferry Holdings - the limited liability company set up by the government to manage the project after cancellation of the former iReX project - showed programme costs "are above the $1.747 billion cost envelope identified" by Cabinet in March.Costs were laid out when the project launched in July, including $596m for the two new ferries, $403m for infrastructure work in Wellington, $426m for programme management and contingency.A further $37.5m commitment announced this month - for rail-yard upgrades and to add auto-mooring to the new wharf - brought the total cost of Picton infrastructure to $530m.However, contributions of $110m and $100m from the Picton and Wellington ports, and a further $10m from the Transport Agency, were keeping taxpayer costs "within the $1.7b level initially established"."Third-party funding contributions are being negotiated by Ferry Holdings in the order of $220 million. This means that all the Crown funding ($1.704 billion) is required to deliver the programme," the Final Approval business case from June showed.A graphic showing the new ships, which are 200 metres long and 28 metres wide, have 11 decks.Supplied/ Ferry HoldingsIn early July, ahead of the official launch when Peters officially revealed the names of the new ferries, Ferry Holdings sought approval to draw down the remainder of the tagged contingency funding to complete the main instrastructure works, and meet other costs.An earlier November 2025 document noted the $110m provided by Port Marlborough - on loan from the District Council - was "up to the maximum of its affordability".The business case pointed to cost increases to the total project since then because of "reduced ability to re-use existing assets ... and higher costs for some critical programme elements".This "greater level of new infrastructure ... than initially envisaged" included the need for new linkspans at both ports, and a new linkspan approach structure in Wellington.That was partly because Wellington's CentrePort "was not aware of the condition of many of its proposed re-use assets".However, this cost increase was offset by cost savings found by removing other aspects of the project.'Outside the minimum viable scope'"Several potentially beneficial enchancements have been removed from scope because they push cost above the funding level and are not essential," the business case said."While these investments may deliver whole-of-life value for money, sustainability and the opportunity to improve operational safety, they are not currently included within the funded baseline programme because they fall outside the minimum viable scope."It said such enhancements could be reconsidered in future subject to affordability and in cases where they had "incremental return/benefit to KiwiRail and the Crown, provided it can be delivered without adversely impacting the project delivery timeline".Other changes included the construction of temporary passenger facilities in Wellington and the removal of some investments "because they are more appropriately funded or delivered outside the Ferry Holdings programme".However, the documents showed earlier uncertainty over costs had "been retired or materially reduced", providing increased confidence of delivering on time and on budget with appropriate oversights."There will be no further substantive scope changes as the scope is now finalised, with any minor changes accommodated through the held contingency."Port Marlborough at PictonRNZ / Samantha Gee'Absence of clearly defined and measurable objectives'A Gateway review from June gave the project an 'Amber' rating, indicating feasibility with "significant issues" that appeared resolvable and should not impact delivery.It highlighted relationship management as a key risk, and warned the project suffered from a lack of business cases with assessment of strategic or economic factors, although commercial, financial and management factors were rated three out of four."There is limited evidence of a structured investment logic linking problem definition, options assessment and the preferred solution, and no clear economic framework such as a cost-benefit analysis or equivalent."As a result, the Programme lacks a coherent line of sight from strategic need through to delivery scope, limiting transparency of the decision basis and confidence that the current scope represents the best available outcome."The absence of clearly defined and measurable objectives constrains the ability to assess whether the proposed solution will fully meet the underlying business need."The review called for better documentation, pointing to heavy reliance on "negotiated outcomes and collborative behaviours" rather than competition or benchmarking.It urged a shift to a single risk framework, and alongside staff retention concerns pointed to several risk factors, including the Iran war, time and cost expectations by government, and failing to complete the infrastructure upgrades before the ships' arrival.The documents pointed to Cabinet's decision to prioritise a "minimum viable" approach to the project, and later to emphasise "maximum reuse", saying this anchored the policy approach.'Firm hand on the tiller' - PetersMinister for Rail Winston Peters.RNZ / Samuel RillstoneMinister for Rail Winston Peters said it was a "marvellous project", with infrastructure upgrades to be completed in time for the new ferries' arrival in 2029 and a 20 percent contingency fund in case anything went wrong."We will never rest on our laurels when it comes to cost and time management. Our job as ministers is to hold the companies accountable for delivering on time and on budget."We take responsibility for our decisions. We don't hand over design decisions to consultants and simply accept whatever price they come back with."Asked about the reviewers' recognition of the circumstances in which the programme progressed, "whereby there was a political decision to proceed without the need for Better Business Case requirements and with predetermined time, cost and quality parameters", Peters said people "wanted us to get on with the job".He noted the reviewers commended the "impressive approach to accelerating those actions necessary to deliver a fit-for-purpose outcome, whilst avoiding any regrettable spend" and said they were impressed by the November interim business case which conformed with Treasury guidance."We have applied common sense to this project by appointing an expert board in Ferry Holdings, giving them a mandate to remove costs where possible, but retaining decision rights as responsible ministers to add costs."That means it is easy to remove costs, but very hard to add them - and we have only added cost where the taxpayer and ratepayer was not paying, where it added commercial value, and where we could be assured it would not delay the programme."The important focus from now is to deliver as planned, not chopping and changing the design as you're going like happened under iReX, and maintaining a firm hand on the tiller as we have done throughout".