KEY POINTS:
Builder Mainzeal took a $22.2 million hit on Auckland's new Vector Arena, almost twice the cost blowout expected a year ago.
The arena - which opened many months late on March 18 - cost $94.8 million to build instead of the budgeted $72.6 million.
This is the largest amount Mainzeal has lost on the hundreds of buildings it has put up in 40-plus years.
John L. Walker, the New York lawyer who chairs Richina Pacific which owns Mainzeal, disclosed the enormity of the losses in the company's annual report.
Last April, Mainzeal said it would write off more than $12 million on the arena and waterfront Scene apartments which had consent problems.
But Walker's annual review in Richina's report showed losses from the arena were far greater.
The arena faces its first big test in a fortnight when American rockers Red Hot Chili Peppers play two concerts to sellout crowds.
Walker said Mainzeal's original $72.6 million arena contract price included a $67 million fixed-price fee as well as more money for approved variations which included enhancements and additional features.
He cited three main issues in explaining the blowout: Mainzeal's own inadequacies in planning the job, delays caused by incomplete and late designs from the US-based architect and an engineering rule change which meant significant changes to the roof.
The roof changes alone cost Mainzeal $4 million, Walker said.
Crawford Architects in the US has defended its position on the arena.
The facility opened last month but the blood-letting over its construction is far from over.
Richard Yan, Richina's chief executive, also issued an outspoken summary of the difficulties his company faced on the job.
He told shareholders he owed them an explanation for such big losses.
"In China, there is a saying which is roughly translated: 'Disasters never happen alone!' This cannot be a more apt description of the travails of the arena saga," wrote Yan, an Auckland University graduate, in Richina's just-released annual report.
He blamed problems on the arena's highly complex and extremely large roof with its twin curved planes.
"In the end, the biggest single contributor to the delay in completing the project, and hence the resulting financial loss, came from unexpected issues we encountered on constructing an unusually complex roof."
Yan also blamed new roofing guidelines, altered part-way through Mainzeal building the arena.
"In late 2005 there was apparently a building roof issue in Australia and the resulting investigation discovered that the common engineering principles applied to the design of that roof were faulty, despite the fact that the particular design had been commonly applied throughout Australia and New Zealand for more than a decade previously.
"As a consequence, the respective Australian and New Zealand Heavy Engineering Research Association started in February 2006 to make changes to the engineering guidelines of such designs. It took months for those changes to be refined and finalised in New Zealand. The guideline changes are not considered changes in law or regulation (which we are protected from in our contracts), and our board and senior management made the decision as soon as we became aware of these changes that we must meet all new standards whatever the costs. We did this, but the costs were heavy indeed."
Yan said the irony was that Mainzeal could have finished the arena by the target date of December 2005 but it chose to meet the new rules.
The arena job had resulted in changes at Mainzeal, Yan said.
"We recognise that the arena project is an unacceptable management failure which has caused our shareholders a great deal of totally avoidable and unnecessary pain."
Mainzeal had made "substantial changes" and was " confident ... these mistakes will not be repeated".
Shares in Richina, which made a net profit of $6.3 million for the year to December, closed up 2c at 41c yesterday.
PROBLEMS
Builder Mainzeal:
* Apologises to shareholders.
* Blames complicated roof structure.
* Says roof rule change caused big delays.
* Also blames "management failure".
* Criticises American architects' designs.
* Says arena was Mainzeal's single worst job.
