New RAH builder CIMIC Limited faces profit hit over hospital delays

NEW Royal Adelaide Hospital builder Leighton Holdings risks a hit to its estimated half-a-billion-dollar profit this year amid a dispute with the State Government, analysts predict.

Site shots of the new Royal Adelaide Hospital from Port Road. 23/02/16 Picture: Stephen Laffer

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• Race against time as new RAH delayed
• New RAH misses first formal deadline
• Taxpayers to spend up to $100 million to run empty new RAH
• So when is the new RAH actually going to open?

NEW Royal Adelaide Hospital builder Leighton Holdings risks a hit to its estimated half a billion dollar profit this year amid a dispute with the State Government, analysts predict.

The Advertiser on Tuesday revealed Health Minister Jack Snelling has issued a major default against the consortium in charge of the project, SA Health Partnership, over chronic delays.

SA Health Partnership includes companies ranging from cleaning service Spotless to Hewlett Packard Enterprise and a joint venture between Leighton Contractors and Hansen Yuncken.

Market analysts Morgan Stanley warned investors that CIMIC Limited, the new name Leighton adopted last year, could suffer financial losses as the RAH runs late.

It says those losses could be more than just the loss of $1 million per day in contract payments, which the consortium will now not receive from the Government until the project is complete.

“The decision by South Australia’s health minister to issue a major default notice for the construction of the (new) RAH after a deadline for technical completion was missed on April 4 suggests performance by the SA Health Partnership (CIM and Hansen Yuncken) has

once again deteriorated,” Morgan Stanley said in a statement to investors.

“Over and above this lost revenue we would expect the Partnership will be incurring its own cost over runs as it attempts to complete the work as quickly as possible and potentially, if delays continue to escalate, we would expect that liquidated damages may also be triggered.”

Morgan Stanley said this puts an up to $580 million profit CIMIC expects in 2016 “at risk”.

SA Health Partnership has declined to comment since the major default was issued and is yet to reveal a likely date for technical completion of the build and handover date to the Government.

Mr Snelling says the anticipated delay in the new RAH’s opening, which looks set to be pushed back from an original date of this month to sometime next year, will have a positive effect on the State Budget as it delays the start of payments to the consortium.

Mr Snelling has said the major default notice “is likely to result in very significant financial repercussions for the consortium” which will force them to be more open with the Government.

The Opposition has this week called for a judicial inquiry into SA Health, saying the department is out of control amid scandals over patient record hacking and false prostate cancer diagnoses.

Opposition health spokesman Stephen Wade said: “Each of these gross breaches of quality health care must be forensically examined to shine a light on how SA Health should be reformed”.

“The raft of problems engulfing SA Health indicate that the governance and culture of the organisation has been corrupted,” Mr Wade said.

“It is no longer credible for Minister Snelling to tell us he is angry about yet another failure of the department for which he is responsible.”