Part 2: The three collaborative agreements

2.1
We focused our audit on three different collaborative agreements between Transit and district councils for managing maintenance of state highways and local roads. In this Part, we describe how these agreements were set up. The agreements are:

• a delegation from Transit to Rotorua District Council for the council to manage the maintenance of state highways with the maintenance of local roads;
• an agreement between Transit and Marlborough District Council for Transit to manage the maintenance of local roads with the maintenance of state highways; and
• a 10-year performance-based contract that Transit and Western Bay of Plenty District Council have jointly let for the maintenance of both state highways and local roads.

The delegation from Transit to Rotorua District Council

2.2
Transit has delegated authority for managing the maintenance of state highways in the Rotorua district to Rotorua District Council. The delegation from Transit to Rotorua District Council was the first of the three collaborative agreements to be set up.

Operating since 1990

2.3
Before July 1991, there was an agreement between the National Roads Board (Transit New Zealand's predecessor) and some local authorities, including Rotorua District Council, for these local authorities to manage the construction and maintenance of state highways. In August 1990, pending the end of this agreement in June 1991, Rotorua District Council resolved to advise Transit that the council wished to control and manage all state highways within the Rotorua district. The council resolved to hold negotiations with Transit to determine how such control would affect the council.

2.4
The council's district engineer led negotiations with Transit. They were extended while the then Transfund board was being set up to oversee Transit's programming and funding. The council operated an informal delegation to determine the benefit and effect of managing state highway activities until December 1996, when the council and Transit signed a formal delegation agreement.

Scope of the delegation

2.5
Transit had delegated a range of functions, duties, and powers to the council. The council acted as the client on Transit's behalf for the whole of the state highway network in the district and managed maintenance programmes and capital projects, as well as other activities. Transit paid the council an administration fee.

2.6
Transit retained full power and control over state highway policy. Transit has also retained responsibility for planning and access control and other activities, such as commissioning programmes, bridge inspections, traffic counting, and issuing permits for overweight loads.

Administration of the delegation

2.7
The council told us that, for administration purposes, state highways and local roads were treated separately. For example, there were separate financial streams and works programmes for state highways and local roads. Separate highway and local roads managers managed the main road maintenance and professional services¹ contracts for state highways and local roads, although the council had some combined contracts for activities such as street lighting, traffic signals, street sweeping, and electricity supply.

2.8
The council told us that, despite the administrative separation, the highway manager and local roads manager planned and managed state highway and local road activities as if for one network. The two managers told us that they were located in offices next to each other and worked together as required on projects and activities that affected both state highways and local roads, such as works projects on local roads near a state highway intersection. The highway manager was responsible for road safety and education for both state highways and local roads.

The agreement between Transit and Marlborough District Council

2.9
In about 1999, Marlborough District Council approached Transit with a view to entering a form of alliance for managing the maintenance of local roads and state highways together.

Operating since July 2000

2.10
Marlborough District Council entered into a five-year agreement with Transit on 1 July 2000 for Transit to manage the council's roads on its behalf. The contract, known as the Local Roads Asset Management Agreement (the agreement), was renewed for a second term of five years from 1 July 2005.

2.11
Under the agreement, the council retained control of local roads and the associated roading budget, and Transit became a supplier of roading management services to the council.

Feasibility project before entering into the agreement

2.12
The council and Transit conducted a joint feasibility project in 1999 to assess the costs and benefits of an alliance.

2.13
The feasibility project was divided into seven workstreams:

• a financial workstream to map the cash flows and set up accounting and reporting systems for the alliance;
• an office establishment workstream to consider the office facilities the alliance would need to deliver the functions and levels of service required;
• an assets and services workstream to prepare a schedule of functions to be performed by the alliance, resourcing levels, and indicators for levels of service;
• a contract terms and conditions workstream to consider options for the form of contract between the council and Transit;
• a supplier restructuring workstream to consider what form of maintenance contracts the alliance should enter into, and to report on the level of savings restructuring supplier contracts would achieve;
• a customer focus workstream to develop a brand name, a customer service strategy, and an implementation plan for the alliance; and
• an organisational structure and staffing workstream to consider options for structuring the alliance and a basis for employment contracts and human resource services.

2.14
A joint venture was ruled out because of tax and other complications.

Local Transit office set up

2.15
Under the agreement, a local Transit office was set up in Blenheim to jointly manage both local roads and state highways passing through the district. The Transit office is called the Marlborough Roads office and was opened on 1 December 2000.

2.16
Transit and the council retained their respective statutory responsibilities for the state highways and local roads in Marlborough, but jointly managed the state highways and local roads as an integrated district roading network through the Marlborough Roads office. Combined contracts for maintaining both state highways and local roads had been awarded, with Transit as the principal party.

The joint contract let by Transit and Western Bay of Plenty District Council

2.17
Western Bay of Plenty District Council and Transit have joined together in contracting for maintenance of both state highways and local roads. The Western Bay of Plenty district is the only place where Transit and a local authority have joined together to award a long-term performance-based maintenance contract.

Awarded for 10 years from 1 October 2002

2.18
In August 2002, Western Bay of Plenty District Council and Transit jointly awarded a 10-year contract for planning and delivering network maintenance activities for the combined council and Transit district roading network in the Western Bay of Plenty district. The contract started on 1 October 2002 and was performance-based, with specified outcomes underpinned by performance criteria.

Lead-in to the contract

2.19
There was a lead-in time of between three and four years before the contract was awarded. This time was used to gather data, develop performance standards and measures, and prepare the documentation.

2.20
The council first considered the concept of a performance-based contract in May 1999, when it looked for alternative service delivery options for roading. The council told us that it collected a lot of data on the condition of local roads and believed that its asset management planning was more advanced than other local authorities. This meant that it was well positioned to specify what it wanted from a performance-based contract. The council decided to let a professional services contract to develop key performance measures appropriate for a rural roading authority.

2.21
The council recognised that Transit had a growing body of experience in performance-based contracting and approached Transit. The council wanted to share the set-up costs and believed that Transit was keen to set up a contract in the Western Bay of Plenty district that would cover both state highways and local roads, to gain advantages of scale. It also believed that Transit thought the council was one of the few local authorities in a position to develop a performance-based contract proposal. The council told us that it had tested how well it and Transit worked together by sharing a network safety contract and that it had a roading manager who Transit had confidence in and who led the setting up of the performance-based maintenance contract.

2.22
In October 2000, the council and Transit formally agreed a protocol for developing a proposal to more efficiently manage roads in the Western Bay of Plenty district through joint contracts. The goals of the project under the protocol were to develop a proposal for a joint 10-year performance-based contract and an associated structure for managing roads in the area and to implement the proposal if both organisations endorsed it.

2.23
A joint council and Transit management board was set up to oversee the project and to seek policy direction where necessary. Both organisations agreed to cover the costs involved, including the costs of any external service providers.

2.24
The main activities involved agreeing on funding assistance for the 10-year contract with Transfund, drafting the necessary contract documentation, and consulting with industry. Industry workshops were held during 2000 and 2001 to explore interest, service delivery options, and performance criteria, before tender documents were finalised.

Joint management structure

2.25
Before entering into the contract as joint principals, the council and Transit drew up and signed a Principals Agreement as a basis for managing the contact. The Principals Agreement sets out their respective rights and liabilities, and the basis of their relationship with the contractor and third parties.

2.26
The council and Transit agreed to work co-operatively and in good faith to get the most efficiencies and highest quality of outcomes possible and to minimise the costs of managing the district roading network in the Western Bay of Plenty district.

2.27
A joint management structure was set up by the Principals Agreement. It comprised:

• a Joint Client Panel to oversee performance of the contract;
• a Management Board to oversee implementation of the contract; and
• an independent contract superintendent to administer the contract on behalf of the council and Transit, in accordance with the contract conditions.

Summary of the three agreements

2.28
In this Part, we have described how the three collaborative agreements that we examined were set up. Figure 2 shows the differences in term, scope, contractual arrangements, and management structures between the three agreements.

Figure 2
Summary of how the three collaborative agreements were set up

Source: Office of the Auditor-General

1: In the context of this report, the term "professional services" refers to technical services provided by an independent contractor to support effective management of roading assets. Such services include developing road network management strategies, drafting asset management plans, checking and approving maintenance contractors' work programmes, monitoring contractors' operations, and auditing contractors' work.