Creditors claim $40m from failed Australian prison builder

Creditors of a failed arm of Australian-owned prison builder Decmil Construction are claiming $40 million from the business which went into liquidation this month.

Dermott McVeigh of Perth's Avior Consulting has released his first report into the business contracted to produce accommodation for nearly 1000 prisoners on five sites in Christchurch, in Wellington and Tongariro.

Dozens of New Zealand businesses including electricians, builders, plumbers, material suppliers, lawyers, fencing, fire service, flooring, equipment hire, banks and major crane hire businesses are on the creditor schedule.

"It's been a total double-whammy for us," complained one creditor yesterday. "There's been this [liquidation] and then the five-week lockdown when we couldn't work."

Another said he hoped money could be recouped and work might resume.

Both creditors praised the Department of Corrections, which contracted Decmil to build the Chinese-imported prison units at existing facilities to expand capacity. Corrections had kept them well-informed, both creditors said.

Both also said Corrections had asked them not to speak about the situation. They hoped to return to the sites, saying they had such specialist knowledge that it would make sense.

The schedule shows Decmil Australia is the largest creditor, claiming $25.2m.

Corrections and Decmil are locked in a dispute, Corrections claiming $12m and Decmil claiming $12.5m.

In 2017, Corrections named the ASX-listed company as the preferred contractor for $60m 'modular prison cells' in Rolleston Prison and Tongariro Prison. Corrections commissioned three sets of 126-bed units for the lower security prisoners: two for Rolleston and one for Tongariro.

Decmil had experience in the sector. Its biggest corrections project in Australia was the A$415m Manus Island offshore processing centre, finished in 2015.

Decmil's New Zealand prison project expanded to three other sites and rose to nearly 1000 new prison beds. In 2018, the contract was varied with an additional five units to be built at Christchurch Men's Prison, Christchurch Women's Prison and Rimutaka Prison.

McVeigh said in his first report the company was put into liquidation this month due to an unresolved dispute with the Corrections on the major contract.

"The contract was terminated, resulting in significant losses being incurred by the company. The directors and shareholder concluded that the company could not continue trading and proceeded to have the company wound up," McVeigh said.

Andrew Robertson, Corrections' deputy chief executive of finance, property and technology, this week explained to the Herald how things went wrong with the programme which originally aimed to build new prisons fast.

On February 25, Corrections terminated the contract with Decmil Construction NZ which won a tender to supply and deliver the new 976-bed modular prison programme, he said.

"Decmil failed to meet schedule and quality requirements, mainly due to how they organised and managed their work in New Zealand. Despite significant assistance from Corrections, the programme was running 12 months late and work delivered to date is not yet fully fit for purpose," Robertson said.

Robertson said Corrections had tried to negotiate with Decmil.

"Before coming to the decision to terminate the contract, we attempted to negotiate an end to the agreement with significant concessions offered to Decmil to find a solution that was workable to both parties. This was unsuccessful. Decmil and Corrections had agreed to arbitration in order to settle matters in dispute," he said.

Corrections had paid New Zealand subcontractors for their works. Decmil had not paid them "and we will be seeking to recover this money," Robertson said.

Decmil NZ remained liable for the extra costs Corrections was now bearing to finish the project under new arrangements, he said.