by Braden Austin, President, IPWEA NZ
Nobody comes out looking good in the recent report into the Mangawhai wastewater project by the New Zealand Controller and Auditor-General, Lyn Provost. Nobody.
One of the things not discussed in the report was allowing the community to develop to the size it did without a reticulated sewerage scheme. Far from unique, there are other examples of this around NZ and, in many cases, they derive from a past where it was seen as a right to develop holiday 'baches' and ‘alternative lifestyle’ homes free from the up-front costs of sewerage systems and the like.
Did we have a more laissez faire attitude to land-use planning and infrastructure provision in the past – or is it still happening? When a community is allowed to grow to the size of Mangawhai without a sewerage system, you have a problem that even a well-functioning small council can struggle with. The report graphically illustrates what can go wrong when a poorly functioning small council is forced to deal with a large and complex problem.
Working through the OAG report, one of the first things I wondered was whether going to land-based disposal, while not necessarily the wrong decision, was a decision that was more about ‘caving in’ to pressure without having adequately explored the costs and benefits of other options.
Setting the scene for disaster
The next set of pressures that came to bear was keeping rates affordable and staying within debt limits. These appear to be the main drivers of several poor decisions that set the scene for disaster.
The first big mistake was when Kaipara District Council (KDC) got into the mind-set that getting the capital cost off the balance sheet using a BOOT scheme type of PPP was a ‘silver bullet’ to the affordability issue. The second followed shortly thereafter when the council determined its own appetite for risk on this project was close to nil. The combination of these two factors dramatically escalated the cost of the project – although there was apparently no deliberate consideration of this at the time. The commercial complications that arose from shifting costs off the balance sheet added millions to a project with an original estimate of $10.8M. The final cost is estimated at $63.3M.
A basic rule of thumb to minimise overall project costs is to vest the responsibility for a risk with the party best able to manage it – and that would have been KDC in a number of instances. Of course this pre-supposes that KDC actually had the necessary ‘smart buyer’ and project management capability to manage such risks and it seems that, in this case, they probably did not – or at least they weren’t willing to use it.
KDC retained responsibility for providing a disposal site and one of the more surprising aspects of the project was not having the site secured prior to committing to the PPP contract. This must have backed council into a corner and it is therefore not surprising that the disposal costs escalated from $361,000 to $14 million, most of which was the purchase of a dairy farm. The failure to line up the critical project elements and understand the risk of proceeding without one of those elements pinned down seems unthinkable – but it happened.
One of the other fundamentals is the need to be clear about what the project manager is and is not responsible for and to fill any gaps with staff or consultants. There appear to have been huge gaps between what was required and what was actually resourced. In some respects it seems fortunate that the completed scheme even functions properly.
Design and project management aside, independent legal and financial advice is critical – especially when embarking on contract types not well known in our sector. And that advice needs to be taken into account, and be seen to be taken into account – not just ignored as seems to have happened.
Another problem area was the internal decision-making and record-keeping processes. Workshops with councillors are great and have their place – but they are no substitute for the formal processes and record keeping systems of minuted council meetings. Basic project administration is really important and one of the most surprising aspects of this saga is that nobody knows exactly what the scheme actually cost - and this stems from poor record keeping.
The elephant in the room
One of the really big questions raised in the OAG report is, “Do current public sector structures and allocation of responsibilities support effective development and maintenance of infrastructure?”
Thinking about the build-up to this question within the report, the elephant in the room appears to be ‘can we reasonably expect smaller local authorities to be able to handle big infrastructure decisions in a manner that consistently leads to best value outcomes?’ I think it depends on the abilities and experience of the staff and councillors present at the time. It can be tough for smaller authorities in particular to consistently maintain these at the necessary level over time – i.e. depending on the project timing, there is a certain amount of luck involved as to whether the community will be ‘sold a pup’ or not. Of course that’s just not good enough. And it’s not to say a larger local authority can’t make a similar mistake (but I think the chances are far less likely).
This all raises a fundamental question about how we should go about achieving and maintaining an adequate level of asset management competence in the organisations responsible for some of our most essential services. IPWEA NZ has turned its mind to this issue. Earlier this year the Government’s Infrastructure Efficiency Expert Advisory Group concluded that LGNZ should establish a Centre of Excellence for Infrastructure. To be effective, such a centre must include asset management at its core. The closest thing we have to a Centre of Excellence in infrastructure asset management is the IPWEA NZ group. IPWEA NZ and its entities have now been working on the key asset management components for around 20 years. What’s still missing is industry’s consistent use of the tools and training we have developed together. IPWEA NZ and its entities have a range of asset management tools and training and we are working with Local Government NZ and others to assist councils to improve their asset management practices.
Asset management for the remaining public infrastructure (electricity, rail, corrections, education etc etc) is generally further behind than local government. Advancing matters will require leadership not just from IPWEA NZ, but others as well, and so we are having a conversation with the National Infrastructure Unit. We can make the NZ Inc Waka go a whole lot faster, but it won’t happen without leadership.
Looking for positives in the sorry Mangawhai saga, one can say the community did get a reticulated wastewater scheme that works, that the iwi (Māori tribe) are hopefully no longer offended and the harbour will be better for it. But it cost an estimated $63.3M for a permanent population of 1290 (in 1999; 9200 in 2027). And there’s the human cost.
Is this really a one-off? Are there ‘other Mangawhai’s’ out there? Although it’s a pretty extreme case, I think there could be. Indeed I think there already have been others. I leave you to think about an infrastructure project near you that didn’t go, or isn’t going, so well.
Braden Austin prepared this article as President of the IPWEA New Zealand Division (IPWEA NZ) and the views expressed are his own.