A UTAS move to the Hobart CBD would cost at least $1.19 billion more than refurbishment of the Sandy Bay campus

(NB: this blog post serves as the second part to Deloitte reports should sound death knell for UTAS relocation – Part 1).

Section 1 – Key Points

Despite being a public institution, UTAS has never willingly placed in the public domain any of its business case material or financial modelling for the proposed relocation of its southern campus to the Hobart CBD and redevelopment of the Sandy Bay campus site as, to quote Vice-Chancellor Black, a “micro-suburb“.

Instead, I have had to undertake protracted battles with UTAS through Right to Information (RTI) – entailing strong intervention by the Ombudsman and his office, and a series of formal Ombudsman decisions against UTAS – for that information to be released (for my most recent blog post on this subject see Ombudsman delivers crushing RTI decision against UTAS – again!).

This post distils the major financial information from the key documents and related papers that I have secured through RTI, namely:

(1) the Southern Future Business Case which was the basis for the UTAS Council’s decision on 5 April 2019 to relocate its southern campus to the Hobart CBD; and

(2) the report by UTAS consultant Deloitte entitled The University of Tasmania Planning Scheme Amendment: University of Tasmania (UTAS) Sandy Bay Masterplan Financial Feasibility Assessment – Working Draft of March 2022 (the Deloitte Report), the Planning Scheme Amendment and Masterplan themselves and various other documents used by Deloitte, which were either produced by other UTAS consultants or UTAS Properties Pty Ltd, a fully owned subsidiary of UTAS which managed the consultancies.

UTAS’ proposed CBD move requires extensive building work that vastly exceeds its cash and investment holdings.

Based on UTAS’ May 2021 Southern Campus Transformation Preliminary Urban Design Framework flippingbook, its proposed 10-year CBD ‘work program would include: construction of 10, and potentially 11, new buildings; restoration/retrofit/refurbishment of 14 buildings; and significant demolition work.

On UTAS’ figures, the wholesale redevelopment of the Sandy Bay campus site is required to fund UTAS’ proposed CBD work program as well as the 30-year Sandy Bay redevelopment project itself, with cash, investment funds and borrowings providing bridging finance until the Sandy Bay site provides a net revenue gain from property rentals. UTAS has estimated that it stands to gain $200 million (August 2022) from relocation “over time” – the “time” in question presumably being the standard 30-year period used for project evaluation (See Appendix 1).

Quite apart from the educational and student welfare issues associated with the proposed CBD move (see the many submissions on these issues to the Legislative Council Inquiry into the Provisions of the University of Tasmania Act 1992; hence referred to as the LegCo Inquiry), and the potential loss of a uniquely beautiful university campus, there is one massive and insurmountable problem with UTAS’ planned relocation.

THE COST

On any realistic assessment, UTAS numbers do not add up – and they do not add up by a very large margin, as they are based on highly (not to say ludicrously) optimistic assumptions and have been impacted by inflation, particularly of construction costs, since they were formulated.

Drawing entirely on UTAS’ own figures as the bases for my calculations, in the two tables below I summarise the costs and benefits of (1) relocating UTAS’ southern campus to the Hobart CBD and redeveloping the Sandy Bay campus site (Table 1) and (2) refurbishing UTAS’ southern campus (Table 2).

Full versions of these tables with detailed explanatory notes are provided at Appendix 2 and Appendix 3 respectively. Support for those tables – including excerpts from referenced UTAS material, details of other sources and further explanatory material – is provided in Appendices 4-9.

The tables show that with allowance for inflation, and a realistic construction cost contingency of 50% applied, UTAS’ proposed CBD relocation would have a total cost $1,397 million (in cash terms) compared to a total cost of $210 million for refurbishment of the Sandy Bay campus – a cost differential of $1,187 million ($1.19 billion!).

I have not applied a contingency for benefit/revenue risk in Table 1. I simply note that if the benefit figure from increased student accessibility is removed from calculations, and Deloitte’s revenue estimate is discounted by 10%, my estimate of the cost of UTAS’ proposed relocation would increase from $1,397 million to $2,012 million. The cost differential between UTAS’ proposed relocation option and refurbishment of the Sandy Bay campus would increase to $1,802 million.

As elaborated in Section 2 and Appendices 8 and 9, I believe an assumption of any net benefit from increased student accessibility is highly dubious and that a discount of 10% to Deloitte’s revenue estimate is modest in light of the strong statements Deloitte itself makes on revenue risk.

UTAS would, of course, be forced to take action well before a scenario involving a loss of $1.4 billion (or more) was fully realised on relocating to the Hobart CBD. I have considered the options available to the UTAS Council at length in previous posts, for example UTAS heading towards insolvency – UTAS Council and State Parliamentarians on notice, but briefly they include:

seeking a cash injection (‘bail-out’) from the State and/or Commonwealth Government – any ‘bail-out’ would be highly unlikely to be on the scale required;

sale and lease-back of assets – this would only add to UTAS’ losses over time;

major reductions in its operations/regional presence (south, north and northwest) – this would likely lead to an outflow of students to other universities, which would reduce UTAS’ revenues and, anyway, hardly constitute the hallmark of a successful relocation; and

further borrowings – adding to the risks I have identified with UTAS’ $350 million Green Bond, including insistence on early repayment of that debt by investors.

These options are all flawed and, put at its simplest, going any further down the relocation path is folly and, as I have stated to the UTAS Council, means that UTAS is trading towards insolvency.

In contrast, even with significant allowance made for cost increases, refurbishment of the Sandy Bay campus remains a relatively inexpensive, no risk option. It simply requires a UTAS Council and management dedicated to promoting the benefits a southern campus based at Sandy Bay can provide in terms of student welfare, academic excellence and world class amenity. The cost of about $210 million (following sale of UTAS’ surplus CBD properties) could be covered from UTAS’ current cash and investment holdings.

Putting the cost of UTAS’ proposed relocation in perspective

Two issues that I have particularly noticed with UTAS’ proposed relocation are that people tend to focus only on the cost of UTAS’ proposed CBD work program or that they lose a sense of perspective of just how big the costs are for UTAS’ proposed CBD move and Sandy Bay redevelopment when taken together.

Here is some perspective. In terms of costs, as can be seen from Table 1, UTAS’ CBD relocation would cost 6 times more than the current estimated construction cost of $715 million (2022) for the Macquarie Point AFL stadium project on UTAS’ own figures ($4,526 million) and over 8 times more on mine ($6,082 million).

A realistic final cost for the stadium might be closer to $1 billion; even so it would be dwarfed as a project by UTAS’ proposed relocation to the Hobart CBD.

While, understandably, there have been many concerns raised about the Government’s documentation, rigour and transparency on the Macquarie Point project, the Government’s performance has been ‘light years’ better than UTAS’ on its proposed CBD relocation (see for example the macpoint site; UTAS provides nothing comparable).

By way of further perspective, the current cost estimate for the Marinus Link is $5.5 billion and the total budgeted revenue for Tasmania for 2023-24 is $8.4 billion.

UTAS has long made a fetish of its role and status as a ‘developer’, but its ambition to play the role of master developer in the truly ‘big league’ is, I believe (as Deloitte also seems to believe), high risk and – quite simply – wrong (see Section 2 and the excerpt from p69 of the Deloitte Report in Appendix 9.

UTAS needs to focus on its core business of education, and Tasmanians should demand this.

What might UTAS say about my analysis?

I believe I can predict what UTAS will say about the analysis I present here (in private, if not in public), because it has already, in effect, said it to me in a decision letter on one of my RTI requests.

It will say its plans have moved on, and that my analysis and cost-benefit estimates are redundant.

The exact quote was, “As we know, the proposed Masterplan was withdrawn in 2022. I am also informed that the Masterplan’s contents and the financial modelling surrounding it is no longer relevant in the context of the University’s future strategic planning.”

DO NOT BELIEVE OR ACCEPT THIS,

Any adjustments UTAS may be making to its plans are likely to be at the margins and/or include the sorts of flawed options I mentioned above that the UTAS Council would explore before it becomes insolvent. UTAS may also be counting on a more favourable environment after the State election on 23 March 2024, including more pro-development planning laws.

Until UTAS puts revised plans and costings fully into the public domain, and they have been independently scrutinised, my analysis stands.

‘Back to the future’ – VC Black and STEM funding

On ABC’s Mornings program with Leon Compton on 7 March 2024, VC Black further muddied the waters on funding of UTAS’ unaffordable relocation plan, by suggesting that (partial) Commonwealth funding may be back on the table for UTAS’ proposed new Science, Technology, Engineering and Mathematics (STEM) facility in the Hobart CBD.

This is a case of ‘back to the future’ as VC Peter Rathjen used the prospect of a Commonwealth grant for a new CBD STEM facility as a way to leverage his original plan for relocation of UTAS’ southern campus from Sandy Bay to the Hobart CBD in the period 2015-2017 (see Appendix 7). Commonwealth funding never eventuated.

A recording of the full interview is here (37.45 minutes in); the ABC has also released an excerpt from the interview and partial transcript.

VC Black mentioned a cost of $400 – $500 million for a new STEM facility. The actual cost estimate for UTAS’ STEM proposal to the Commonwealth in 2016 was $400 million, with a request for the Commonwealth to provide $250 million (p4). Adjusting that estimate of $400 million for inflation to December 2023 brings it up to about $544 million and application of 50% construction cost contingency raises it to $815 million (see Appendix 7).

Of course, these figures assume the specifications envisaged for the facility in 2016 would remain the same. UTAS could always ‘descope’ the facility, that is, wind back on building features, but that would rather defeat the notional purpose.

VC Black also stated that the STEM facilities at Sandy Bay are “really old” and need “renewing”. This is highly questionable and, anyway, $800 million, or even just $500 million, would pay for complete refurbishment of the Sandy Bay campus with plenty of change left over.

There is also considerable doubt that STEM facilities could be constructed in the CBD so that they could be fully fit-for-purpose no matter how much was spent, given issues, for example, over configuration and space requirements, and the need for storage or disposal of hazardous materials. These are issues on which VC Black struggled painfully in his evidence to LegCo Inquiry (see pp 18-19 of the transcript for 4 May 2023).

UTAS’ vision of a new STEM lab in the CBD – no lab equipment, in fact no equipment or facilities of any kind, apart from big tables and a few accessories! This would be funny if it was not symptomatic of UTAS’ lack of concern for detail, the real needs of staff and students and its core business of education (see also Section 2 on UTAS’ failure to cost significant items in its proposed CBD relocation).

My approach in Tables 1 and 2

Before concluding this section, I will make some brief comments on my methodological approach in Tables 1 and 2 and the more detailed versions of those tables in Appendices 2 and 3. Those who are interested will find my underpinning analysis, details of my sources and further explanatory material in Section 2 and Appendices 1 and 3-9.

I have focused on cash in my cost-benefit analyses, as UTAS’ financial sustainability relies on cash flows. I note in this regard that UTAS obscured the large cost of its proposed CBD building works program in the Southern Future Business Case by citing book values in a key table (p65, “residual building value”).

As is made clear in Appendices 2 and 3, all my figures are derived rigorously from UTAS’ own figures, with my assumptions/methodology for updating its figures for inflation and calculating contingencies fully spelled out. This is in contrast to my experience in dealing with UTAS’ figures (and those of its consultants), which frequently lacked explanation.

Where I have been in doubt about UTAS’ numbers and/or UTAS underpinning assumptions, I have taken the approach/interpretation most favourable to UTAS’ CBD relocation option, so that I cannot be accused of biasing my figures against UTAS (see Appendices 2 and 3 for details). For this reason, my estimate of the cost of relocation is lower in this blog post than my estimate in Deloitte reports should sound death knell for UTAS relocation – Part 1 and in other places. If I was forced to take a position, I would say that the costs would be higher, much higher, as I believe -for example – that UTAS’ benefit figures in Table 1 are fundamentally unsound (see Section 2).

On my adoption of a 50% construction cost contingency as the contingency that should reasonably be applied see Section 2. This is a transparent adjustment, and I have also provided 25% and 100% construction contingencies.

Many of my earlier blog posts also consider matters that I have not touched upon in this blog post, but which add to the argument against UTAS’ proposed CBD relocation.

Section 2 – Cost and benefit risks in UTAS’ estimates and my adoption of a 50% construction cost contingency

I found no evidence in the Southern Future Business Case (2019) that UTAS had engaged seriously with the issue of risk in its assessment of the costs and benefits of the proposed move to the Hobart CBD.

The Deloitte Report in contrast made many references to risk in its text. In fact, as I noted in Deloitte reports should sound death knell for UTAS relocation – Part 1, “in all my extensive experience dealing with consultants’ reports, and construction projects, I have never encountered a report in which the consultants sought to distance themselves from their clients, and their own calculations, as much as Deloitte did”.

In Appendix 9 I have provided excerpts from the Deloitte Report with Deloitte’s many various qualifications and caveats highlighted.

Notwithstanding Deloitte’s extensive comments on risk, in part at least because it was working on instructions from UTAS Properties Pty Ltd, Deloitte generally did not attempt to quantify that risk. The exceptions were:

It included a 5% construction cost contingency in its cost estimates for Sandy Bay redevelopment and then included a 5% project cost contingency on top of this, meaning that its figures effectively included a 10% contingency for construction costs and 5% contingency for non-construction costs.

Very limited sensitivity analysis, within parameters that certainly did not reflect the true level of downside risk associated with Sandy Bay redevelopment (see the Deloitte Report, p57).

While I also presented 25% and 100% construction cost contingencies in Tables 1 and 2 and Appendices 1 and 2, I believe that the most reasonable construction cost contingency is 50%. In support of this I will briefly outline some relevant recent construction cost increases and comment on the construction risks UTAS would face with its proposed work program for the CBD and redevelopment of the Sandy Bay campus site.

Some relevant cost increases

It was publicly announced in January 2023 that the cost of UTAS’ refurbishment of the Forestry Building had increased from $86 million to $131 million – a 52% increase. I have it on good advice that the preliminary concept design estimate for this project was considerably less than $86 million and it is almost certain that the final refurbishment cost will be higher than $131 million, meaning the final cost increase will be much more than 52% from the time of preliminary cost design to completion.

Deloitte used preliminary concept designs for its construction estimates for Sandy Bay redevelopment.

It should be much easier to estimate refurbishment costs than costs for new buildings.

The cost estimate in the Southern Business Case (2019) for UTAS’ entire CBD building program was only $621 million (see Appendix 2, Note 5, for how this figure was calculated), which – as mentioned earlier – was envisaged in 2021 to include 10 or 11 new buildings, 14 refurbishments/renovations/retrofits and significant demolition work. The Forestry Building refurbishment alone now accounts for over 21% of that amount.

This sort of cost increase is not unusual in UTAS’ experience. Stage 1 of the Menzies Research Institute development increased from $43 million to $58 million – a 35% cost increase, despite significant reductions made to the scope of the project (it is also likely that the $43 million cost estimate was more developed than a preliminary cost design), while the Hedberg Creative Arts Centre increased in cost from $75 million to around $117 million – a cost increase of 56%.

As UTAS’ proposed relocation to the Hobart CBD and redevelopment of the Sandy Bay campus is a multi-billion dollar project, it also worth recalling recent experience with projects on a similar scale:

The estimated cost of the Commonwealth Games in Victoria increased from $2.6 billion to $6.8 billion (mainly related to building costs) in the space of a year, leading to their cancellation.

The estimated cost of a two cable Marinus Link increased from $3.1-3.8 billion to $5.5 billion in less than a year.

Cost risks

The Deloitte Report lists many cost risks for the Sandy Bay redevelopment project, a number of which also apply to UTAS’ proposed work program for the CBD. Sections of the Deloitte Report dealing with risk are collected together in Appendix 9, but I will briefly summarise the main cost risks here:

Delays in moving (decanting) of staff and facilities from Sandy Bay to the Hobart CBD (p5)

Delays in the delivery of site services (sewerage, water and electricity) to the site (p5).

Increases in the assumed cost of capital (4%) over 30 years (p7).

Site specific risks such as additional construction costs associated with the topographical, geotechnical, environmental and flora and fauna features of the site (pp7 and 80).

“Additional costs associated with trunk infrastructure or upgrade requirements costs, access points and intersection upgrades” (p7).

Higher construction cost escalations than those assumed by Deloitte on the instructions of UTAS Properties Pty Ltd (p7 and p28); see Appendix 2, which provides detail on the cost escalations used by Deloitte.

Difficulties in sourcing contractors and materials in the current market conditions (p7).

Onerous impositions from rezoning of the Sandy Bay site such as limits of building specifications, setbacks, land maintenance asset protection zones, and environmental protection and biodiversity conservation referral requirements (p8) – I note that rezoning of the Sandy Bay site would inevitably and appropriately include such impositions following community consultation and planning law processes.

The use of costings based on a 5% preliminary concept design (p8).

Late instructions from UTAS Properties Pty Ltd involving departures from cost estimates prepared by quantity surveyors WT Partnership (p9 and p28).

Further timeline delays and uncertainties over the staging plan (p75) – I note in this regard that UTAS’ application for rezoning of the Sandy Bay site has already slipped well into 2024 if not 2025.

An overloaded road network (p80).

Deloitte also expressed concern over UTAS’ intention to adopt the role of master developer and remain in ownership of the Sandy Bay site (p69). I believe that this would be an extreme source of risk, but UTAS probably saw it as necessary to remove some ‘middlemen’ costs, and thereby make its numbers superficially better.

To Deloitte’s comments on risk, I would add two more points.

First, from VC Black’s evidence to the LegCo Inquiry on 4 May 2023 (pp18-19) it appears that UTAS had not started costing significant items by that date, including the handling and management of UTAS’ many valuable collections and sensitive scientific equipment.

VC Black said, “The process for designing any of those [CBD] buildings has not begun. Those are things that require detailed attention as you go through the design process.” This was an extraordinary statement to be making in 2023 rather than, say, 2018.

Second, a very major risk factor has now arisen with the potential development of an AFL stadium at Macquarie Point, which would significantly exacerbate/add to the risks identified by Deloitte.

Should UTAS’ building work program in the Hobart CBD and redevelopment of the Sandy Bay campus site coincide with construction of an AFL stadium there would be very major consequences, likely driving potential cost blowouts for both projects well over 50%, and creating other issues, including:

The two projects would be competing for the same scarce construction resources at a time when construction costs have been surging. Other building activity in Hobart, like home building, would increase in cost or grind to a halt.

The already problematic road network in central Hobart, and Hobart generally, would come under immense strain from the amount of construction material and waste being transported, but more particularly from large scale disruptions to the network from closures due to construction activity. This would not only drive cost increases, but threaten to overload the road network, requiring consideration of restrictions.
- In the Southern Future Business Case (p58), UTAS noted the fragile state of Hobart’s traffic network: “The ability of the Hobart CBD to accommodate a significant increase in car driver trips is limited, with impacts expected to spill into surrounding areas and affect the wider Hobart community.” However, UTAS has subsequently totally discounted any major scale impact from its proposed CBD and Sandy Bay building programs.

The Government would potentially have to bail-out’ UTAS and fund the AFL stadium (cost overruns and all) at the same time, with massive implications for the state budget and for the Tasmanian people.

Benefit risks

In line with my general approach of adopting the assumptions most favourable to UTAS’ proposed CBD relocation when in doubt about UTAS’ own assumptions, I have included a net benefit figure for increased student accessibility (enrolments) deriving from relocation of the southern campus from Sandy Bay to the Hobart CBD in Table 1 and the full version of the table in Appendix 1. This is despite the fact that UTAS has not provided any convincing evidence that such a benefit would occur through relocation. See Appendix 9 for more on this issue.

The Deloitte Report identified a number of risks associated with its estimate of the revenue UTAS would obtain from redevelopment of Sandy Bay, but did not attempt to quantify these, other than in its very limited sensitivity analysis (p57). Sections of the Deloitte Report dealing with risk are collected together in Appendix 9, but the main revenue risks are:

Risks associated with UTAS’ continued ownership of the Sandy Bay site and rental rather than sale of properties – Apparently against UTAS Properties Pty Ltd’s instructions/preference, Deloitte made its revenue assessment “on the basis that all assets to be constructed can and will be sold on a freehold basis.” (p5). The implication is that Deloitte’s revenue figure is overstated.

Overestimation of the selling rates of properties (p5) – a particular risk given the slowing in migration to Tasmania.

Achievable selling prices (p6).

Untested revenue assumptions associated with departures from the Masterplan, including in relation to aged care facilities (p6).

Over-reliance on residential product for revenue – with 95% of revenue estimated to come from this source (p26).

Lower revenue escalation rates than those assumed by Deloitte on the instructions of UTAS Properties Pty Ltd (p26); see Appendix 2, which provides detail on the revenue escalations used by Deloitte.

Limited data on comparable rental properties (pp 26 & 32-33).

Despite Deloitte’s own clear misgivings about the robustness of its revenue estimate, I have accepted that revenue estimate at face value.

However, my earlier comment bears repeating that, if the net benefit figure from the increase in student accessibility is removed from calculations and Deloitte’s revenue estimate is discounted by 10% (a very reasonable discount given Deloitte’s own statements on risk), my estimate of the net cost of UTAS’ proposed relocation would increase from $1,397 million to $2,012 million.

List of Appendices following:

Appendix 1 – Excerpt from UTAS’ submission to the LegCo Inquiry on financial sustainability

Appendix 2 – Costs and benefits of relocation of UTAS’ southern campus from Sandy Bay to the Hobart CBD

Appendix 3 – Costs and benefits of refurbishment of the Sandy Bay campus

Appendix 4 – Except from the Southern Future Business Case (2019) – UTAS’ estimate of the cost of CBD works

Appendix 5 – Excerpt from the Deloitte Report – Cost and benefit estimate for Sandy Bay redevelopment, without escalation

Appendix 6 – Excerpt from the Deloitte Report – Cost and benefit estimate for Sandy Bay redevelopment, with escalation

Appendix 7 – Construction of a new STEM facility in the Hobart CBD – ‘back to the future’

Appendix 8 – The ‘red herring’ of increased student accessibility

Appendix 9 – Excerpts from the Deloitte Report – risks, qualifications and caveats

Appendix 1 – Excerpt from UTAS’ submission to the LegCo Inquiry on financial sustainability

Source: page 8 of Attachment 1 of Part 13 of UTAS’ submission to the LegCo Inquiry (August 2022).

Appendix 2 – Costs and benefits of relocation of UTAS’ southern campus from Sandy Bay to the Hobart CBD

Notes:

1. Estimates without escalation (Deloitte uses the term “un-escalated”) are what I understand to be nominal cost estimates – estimates expressed in the $s of the day (as if prices and costs would remain unchanged through time).

2. Escalation of estimates is meant to anticipate changes in the cost or price of specific goods or services over the time period covered. The time period envisaged for UTAS’ CBD building works program was 10 years and for Sandy Bay approximately 30 years (see Appendices 5 and 6).

3. The inflation factors used are specified for line items in the table, as they vary.

4. This is the escalated figure with inflation (a relevant indexation factor) applied since the time the figure was estimated. This is not double counting. Inflation is intended to approximate the actual cost/price increase since estimates were made to 30 December 2023. Escalation anticipates changes in cost or price looking forward.

5. The cost estimate of $621 million is from UTAS’ Southern Future Business Case (2019; SFBC), p61, reproduced in Appendix 4 below. I have subtracted the $56 million cost of Taroona (IMAS) and Cambridge works from the total cost estimate of $677 million, on the basis that these do not relate directly to the CBD move and the cost has already largely been paid. As the SFBC does not specify whether the $677 million estimate is with or without escalation, I have assumed it includes escalation, in line with my general approach of making the assumption most favourable to UTAS’ CBD option, when in doubt.

6. See Australian Bureau of Statistics, Producer Price Indexes. At the national level, output prices of the construction industries rose by 28% between the March Quarter 2019 and the December Quarter 2023. The cost estimate used in the SFBC was likely developed considerably earlier than March 2019, in which case a larger increase would apply. My use of a lower figure favours UTAS’ CBD option, as does the fact that I have used the national figure rather than the Tasmanian, which shows a higher increase in output prices.

7. All cost and revenue estimates for Sandy Bay redevelopment – without and with escalation – are from the Deloitte Report, pp12, 54 and 55. UTAS Properties Pty Ltd specified the escalations to be used by Deloitte both for revenue (p26) and costs (p27). As I noted in Section 2, Deloitte indicated the cost and revenue escalation factors were a risk.

8. See Australian Bureau of Statistics, Producer Price Indexes. At the national level, output prices of the construction industries rose by 17% between the December Quarter 2021 and the December Quarter 2023. The cost estimate used in the Deloitte Report was likely developed considerably earlier than the December Quarter 2021, in which case a larger increase would apply. My use of a lower figure favours UTAS’ CBD option, as does the fact that I have used the national figure rather than the Tasmanian, which shows a higher increase in output prices.

9. As noted in Section 2, Deloitte’s cost estimates (see Appendices 4 and 5) included a 5% construction cost contingency for Sandy Bay redevelopment and a 5% project cost contingency on top of this, meaning that its figures effectively included a 10% contingency for construction costs and 5% contingency for non-construction redevelopment costs. There seem to be some issues (errors?) with Deloitte’s precise numbers.

10. For other Sandy Bay redevelopment project costs I have I have applied the Reserve Bank inflation figure of 12% for the period from the December Quarter 2021 to the December Quarter 2023.

11. I have made a small adjustment to offset what I take to be rounding in Deloitte’s figures.

12. As I have dealt with construction cost contingencies separately in the final three columns of this table, I have removed the construction contingency from Deloitte’s construction cost figures and, consistent with Deloitte approach, applied a 5% contingency to the other (non-construction) costs of Sandy Bay redevelopment. See Note 9.

13. Consistent with Notes 9 and 12, a 5% contingency is provided separately for non-construction costs of the Sandy Bay redevelopment project in the final three columns of this table – $27.2 million being 5% of the non-construction costs of $544 million.

14. See Appendix 8 for the source of the $96 million figure.

15. In the absence of better figures, I have assumed a benefit of $3.2 million a year and adopted escalation of 2.5% a year in line with long-term average inflation.

16. I have applied the Reserve Bank inflation figure of 16% for the period from the March Quarter 2019 to the December Quarter 2023.

Appendix 3 – Costs and benefits of refurbishment of the Sandy Bay campus

Notes:

2. Escalation of estimates is meant to anticipate changes in the cost or price of specific goods or services over the time period covered.

3. This is the escalated figure with inflation (a relevant indexation factor) applied since the time the figure was estimated. This is not double counting. Inflation is intended to approximate the actual cost/price increase since estimates were made to 30 December 2023. Escalation anticipates changes in cost or price looking forward.

4. The cost estimate of $135 million for refurbishment is from UTAS’ Southern Future Business Case (2019), p5.

5. I have assumed refurbishment costs were spread evenly over a 10 year period and applied the construction cost escalation factors used in the Deloitte Report, p27.

6. See Australian Bureau of Statistics, Producer Price Indexes. I have applied the same 28% increase in output prices of the construction industries between the March Quarter 2019 and the December Quarter 2023 that I used in Appendix 3 (see note 8).

7. UTAS used the $100 million figure in its submission to the LegCo Inquiry (see Appendix 1). Partly because UTAS suggested that figure included a premium and partly because of my general approach of favouring UTAS’ CBD relocation option, when in doubt, I have not increased the amount for inflation.

Apart from the various modifications I have made to UTAS’ $135 million figure for refurbishment, I compared the resultant (gross) $310 million figure with costs for specific buildings listed in the Deloitte Report, p37. The figure looks very robust as a potential maximum.

Appendix 4 – Except from the Southern Future Business Case (2019) – UTAS’ estimate of the cost of CBD works

Deducting the cost of Taroona (IMAS Building) and Cambridge works from the $677 million total provides a cost estimate in 2019 of $621 million for UTAS’ CBD work program.

Source: Southern Future Business Case (2019), p61.

Appendix 5 – Excerpt from the Deloitte Report – Cost and benefit estimate for Sandy Bay redevelopment, without escalation

Deloitte Report, p55

Appendix 6 – Excerpt from the Deloitte Report – Cost and benefit estimate for Sandy Bay redevelopment, with escalation

Deloitte Report, pp12 and 54

Appendix 7 – Construction of a new STEM facility in the Hobart CBD – ‘back to the future’

VC Black’s comments on the ABC on 7 March 2024 really are a case of back to the future’.

From the time of VC Le Grew, UTAS had been building its presence in the CBD in a piecemeal way, at least sometimes with a strong rationale and good results, but without any really systematic consideration of whether UTAS should concentrate its southern campus in the Hobart CBD or in Sandy Bay.

However, in 2015 the possibility of Commonwealth funding for the building of a new Science, Technology, Engineering and Mathematics (STEM) facility in the Hobart CBD emerged. The exact circumstances around this remain unclear to me, as does the question of whether VC Rathjen promoted the idea of a new STEM facility in the Hobart CBD in order to leverage complete relocation of the southern campus or whether the prospect of funding for a STEM facility triggered thoughts of complete relocation in his mind (I have started receiving documents from the Department of Prime Minister and Cabinet under Freedom of Information which may shed light on this).

I have written extensively about the evolution of VC Rathjen’s CBD relocation plan, including in We need to talk about Rufus – Part 1.

What is clear is that from 2015 VC Rathjen started corralling support for relocation of UTAS’ southern campus to the Hobart CBD, with a new STEM facility in the CBD to be the centrepiece. By 2015-16, he had enlisted the support of Premier Will Hodgman and by 2016-17 he had led two UTAS/Hobart City Council visits to ‘university cities’ in Europe and secured the full support of the HCC for relocation.

This is ironic as the Commonwealth has never allocated funding for a new STEM facility. Instead UTAS has pursued alternative funding mechanisms for the STEM facility and the other works it envisages in the Hobart CBD, including its long term (deeply flawed) ‘solution’ of acting as master developer of the Sandy Bay campus site as a ‘micro-suburb’ and short-term expediencies like the (deeply flawed) $350 million Green Bond.

While it is possible that VC Black may secure some sort of bogus commitment for STEM funding in the lead up to an election, or thereafter, the idea that the Commonwealth and/or the State would seriously commit where they failed to previously defies belief, particularly in light of cost increases since 2016.

UTAS’ Hobart Science and Technology Precinct Business Case (November 2016) provided a construction cost estimate for a new CBD STEM facility of $400 million.

Applying the increase in the ABS Producer Price Index for Construction for the period from the September Quarter 2016 to the December quarter 2023 of nearly 36% produces a cost estimate of $544 million.

Applying a 50% construction cost contingency takes that figure up to $815 million.

In line with my general approach of adopting assumptions favourable to UTAS’ CBD relocation option, I have assumed the estimate of $400 million included (realistic) escalation rates. If it did not, a higher cost estimate would be reasonable.

Appendix 8 – The ‘red herring’ of increased student accessibility (and enrolments)

Increased student accessibility, leading to higher enrolments and increased revenue, has been one of UTAS’ principal arguments for its proposed relocation to the Hobart CBD; second indeed only to its argument that relocation would provide financial sustainability.

However, until recently, UTAS had not provided any substantive documentation to support its argument. This changed on 11 July 2023, when – in response to a decision by the Ombudsman on my Right to Information application seeking an unredacted copy of the Southern Future Business Case (2019) and its appendices – UTAS released the relevant appendix (click here, p13ff).

This document shows student numbers increasing for both the CBD relocation and the remain-at-Sandy Bay options. As presented in the cost-benefit analysis in the body of the Southern Future Business Case (2019) pp65-66, there is a net gain from increased student numbers (and related benefits) of $42 million for the CBD option relative to the Sandy Bay option, at a Net Present Value (NPV) of 7%. While the nominal $ benefit is likely to about $96 million (2019), this is relatively small ‘gain’ compared to the cost of relocating the southern campus from Sandy Bay to the Hobart CBD.

I derived the $96 million figure from ‘reverse engineering’ the NPV figure across a standard 30-year project evaluation period back to a nominal amount. I had to make a number of assumptions in doing this, but believe the figure will be reasonably close to UTAS’ figure, and a reasonable starting point for the further calculations in Appendix 2.

The difference between student numbers for the CBD and remain-at-Sandy Bay options in the appendix was, anyway, driven by an assumption that relocation of UTAS to the CBD would, of itself, lead to UTAS achieving university retention rates similar to those in other states. This is simplistic and unsupported by data. On the other hand, there is strong anecdotal evidence that prospective UTAS students are starting to move interstate to universities where they can enjoy a true campus experience.

Even if some modest increase in student numbers could be predicted with certainty from UTAS’ relocation to the CBD, it would be ridiculous to relocate the southern campus at high cost to the CBD to achieve this result, even if that cost could be afforded.

The student accessibility issue should, first and foremost, be addressed by improving secondary education attainment and retention rates. Dedicated/express bus services and other transport options should also be considered, together with enhanced outreach activities by UTAS.

I do not believe that increased accessibility was ever genuinely a major factor in the thinking of the main proponents of the CBD move; rather it was a marketing tool.

Appendix 9 – Excerpts from the Deloitte Report – risks, qualifications and caveats

Key

The colour shading is mine: