Part 6: Other agreements proposed since 2002

6.1
No new collaborative agreements have been set up between local authorities and Transit since the Western Bay of Plenty 10-year performance-based contract in 2002, although several agreements have been proposed. In this Part, we report on four collaborative agreements that have been proposed but that have not proceeded. For each proposed agreement, we:

• describe the proposal;
• outline the expected benefits; and
• discuss the reasons the agreement did not proceed.

Central Otago region

6.2
A possible agreement between Transit, the Queenstown Lakes District Council, and the Central Otago District Council was explored between 2002 and 2005.

Proposed joint venture

6.3
In 2002, the Queenstown Lakes District Council, Central Otago District Council, and Transit (the authorities) started discussions on a proposed joint venture to more efficiently and effectively develop, operate, and maintain local roads and state highways in the Central Otago region. A small working party of staff considered the main roading issues facing the authorities and what each of the authorities wanted to get from the proposed joint venture.

6.4
The working party considered four possible governance models for the proposed joint venture:

• combining contracts for network management, maintenance, and capital works under a Joint Principals Agreement - this option was rejected as lacking a robust structure to generate long-term benefits;
• the Marlborough Roads model, with responsibility for local roads delegated by the district councils to Transit - this option was rejected on the basis that it did not achieve the important aim of each of the authorities maintaining the ability to influence service levels;
• setting up a joint governance board to manage roading services on behalf of the authorities - this option was preferred on the basis that it allowed each of the authorities to retain decision-making on service levels at the same time as setting up a robust structure with the critical mass for professional management of roading services; and
• the Western Bay of Plenty model, with responsibility for delivery of long-term roading outcomes passed to contractors and managed through a joint governance board - this option was not considered feasible at the time, because of the lack of information on roading assets and future demands, but it was considered a possibility for the future.

6.5
In April 2003, the authorities signed a Heads of Agreement as the first step in formally coming together. The authorities had different goals (see Figure 9), but there was some common ground on improving efficiency and planning, keeping close contact with road users, making the best use of skills, and improving the quality of roads. The authorities agreed to jointly produce a feasibility report to evaluate setting up a single operating unit that would administer all road operations in the Central Otago region and then implement the recommended operational structure for the unit. The authorities agreed a timeline under which the unit would be operational by July 2004.

Figure 9
The goals that Transit, Central Otago District Council, and Queenstown Lakes District Council sought to achieve by pursuing a joint venture

Source: Heads of Agreement between Transit, Queenstown Lakes District Council, and Central Otago District Council

Expected benefits

6.6
A feasibility study¹ was completed in late 2003 and found that the authorities could develop a partnership to manage roads. It said that a joint management model, creating a virtual entity among the three authorities, could be expected to make it considerably easier for the authorities to meet their objectives for managing roads in the region. The study noted that there was support from the Government through the New Zealand Transport Strategy to seek and develop alliances such as the one proposed. It said that major stakeholders were positive that the proposal and joint management of the roads in the Central Otago region would increase effectiveness and efficiencies on the network and also increase economies of scale.

6.7
The feasibility study noted that the three authorities had recognised that the main benefits of a partnership were:

• developing an organisation with enough mass to attract and retain specialist skills in the management of roads;
• the economies of scale and efficiencies that could be achieved by combining state highways and local roads; and
• the organisation's access to Transit's national skill base for reference and advice on best procurement practice and technical aspects of roading management.

6.8
The study proposed an innovative contracting strategy that would involve consolidating existing maintenance contracts into output-based five-year contracts (similar to what had been done in Marlborough) and then moving to a 10-year outcome-based performance-specified maintenance contract (similar to the one operating in the Western Bay of Plenty district). Asset management information would be improved along the way to enable the transition.

6.9
The feasibility study estimated that the costs of operating the network could be reduced by between 5% and 10%, or $16 million over 15 years, under the proposed contracting strategy. An indicative apportionment of reduced costs for each authority was $8.5 million for Transit, $4.5 million for Queenstown Lakes District Council, and $3.0 million for Central Otago District Council. The study noted that the model used to predict the cost reductions was only as accurate as the data put into it and that, while every effort had been made to achieve high accuracy, the predictions were a "best guess".

Reasons proposal did not proceed

6.10
The feasibility study identified some high-level risks, which it categorised as relating to:

• time and commitment;
• industry and community consultation;
• politics and lack of understanding influencing the decision-making process;
• internal opposition within the authorities; and
• accuracy of the modelling and the data input to it.

6.11
Some of these risks materialised. After the feasibility study, progress slowed considerably. The target date for setting up the organisation was extended to July 2007. Queenstown Lakes District Council told us that the authorities disagreed on the form of organisation they wanted. They told us that the councils wanted a limited liability company with independent directors providing arms length service, but Transit wanted an unincorporated joint venture with Transit having greater leverage on the board of the joint venture.

6.12
An internal report to Central Otago District Council in September 2005 noted that each of the authorities had changed its approach over the previous year and that, as a result, there were doubts about the ability to build an organisation to work as a joint roading authority. The council's opinion was that Transit had centralised planning in Wellington and was now less committed to the partnership, although it would maintain its interest if all other parties did. The report noted that Queenstown Lakes District Council now had other priorities for its limited roading resources, such as the council's recently issued congestion plan. The report also pointed to a feeling that the cultures of the authorities were different and growing apart, making it difficult for a joint organisation to act as a service provider to each.

6.13
The report concluded that Central Otago District Council would not be disadvantaged if it withdrew from the project. The council had decided to move to a more integrated decision-making approach, which meant that a single-focus roading organisation was now less relevant. In October 2005, Central Otago District Council withdrew from the project. A joint media release noted that the authorities agreed that the process had led to each of them gaining better knowledge of the road network and that it had cemented strong relationships between them. It also said that Transit had refrained from entering into any future joint ventures.

Taranaki region

6.14
Setting up a collaborative agreement between Transit and district councils in the Taranaki region was explored between 2003 and 2005.

Proposed model similar to the Western Bay of Plenty agreement

6.15
In 2003, district councils in the Taranaki region jointly commissioned a report² to examine issues associated with setting up a Taranaki roading "cluster" with Transit, including options for the formation of the cluster. The aim of the cluster was collaborative management of roads within the region for better and more cost-effective administration, operation, and maintenance of roading networks. The district councils involved were New Plymouth District Council, South Taranaki District Council, and Stratford District Council. The report evaluated possible governance models for the cluster, based on the same models considered in the Central Otago region. It recommended a joint network management model, possibly combined with performance-based contracting, similar to the agreement in the Western Bay of Plenty district.

Expected benefits

6.16
The report concluded that a roading cluster in the Taranaki region could deliver a number of positive outcomes with no downsides for the region. It identified that the main benefits included:

• a one-stop roading shop that was likely to improve customer service in important areas;
• potentially significant savings from joining together and using performance-type contracts, based on a broad assumption that similar levels of saving would be made to those in the Marlborough and Western Bay of Plenty districts; and
• the ability to attract, develop, and retain staff with technical and intellectual capacity in roading management and to develop speciality roading management systems.

Reasons proposal did not proceed

6.17
A workshop in late 2004 resolved that Transit and the district councils should investigate setting up a cluster, and a Memorandum of Understanding was signed in early 2005. During 2005, Transit decided not to proceed with the cluster, because it had concluded that these types of collaborative agreement required more complicated management regimes and that they did not have enough merit to make it worth proceeding with them.

6.18
New Plymouth District Council drove the proposal. It told us that, before 1989, it had a delegated authority arrangement to maintain state highways similar to that in the Rotorua district. The council said that it would have liked a similar arrangement this time, as it believed that it had the capability to manage state highways and that a delegation would not have required another level of governance. The council told us that Transit had no presence in the Taranaki region to deal directly with issues about the five main streets in New Plymouth that were state highways.

6.19
Although not a road-controlling authority, Taranaki Regional Council was involved in discussions on the proposal. The regional council told us that it believed the report on setting up the cluster was light in detail and that the reasons for setting up the cluster did not reflect all of the realities. The council's opinion was that Transit felt there was little in the proposed arrangement for it, that some of the district councils had some concerns about their level of control over their roading assets in the future, and that some of the district councils did not share the same vision.

Southland district

6.20
Southland District Council sought an agreement on closer working with Transit in late 2003.

Proposed memorandum of understanding

6.21
Southland District Council told us that it and Transit had delegated specific responsibilities to one another for a number of years. For example, the council ran Transit's street light maintenance and noxious plant control contracts, and Transit carried out maintenance on a specific local road on the council's behalf.

6.22
In late 2003, Southland District Council and Transit sought to build on the good working relationship that existed between them by drawing up a Memorandum of Understanding to investigate a more collaborative working arrangement.

Expected benefits

6.23
The draft Memorandum of Understanding listed the common goals of Transit and the council as being:

• to provide a progressive and robust response to the opportunities contained in the Land Transport Management Act 2003;
• to use every opportunity to get maximum benefits from a collaborative relationship between them;
• to deliver the relevant outputs from the Southland Regional Transport Strategy; and
• to strive to improve safety on roads in Southland.

Reasons proposal did not proceed

6.24
Early differences of view on the model for collaboration meant that the Memorandum of Understanding was not pursued. The council told us that Transit's head office stopped Transit's involvement in proceeding with a collaborative working arrangement. It said that Transit wanted autonomy through a Marlborough Roads-type model, but the council wanted a Rotorua-type delegation.

6.25
The council also told us that it was beginning to enter into alliance contracts with consultants and contractors without Transit's involvement. The council believed that Transit's involvement would be beneficial because of Transit's expertise.

Tasman district

6.26
A possible partnership between Transit and Tasman District Council was explored between 2004 and 2005.

Proposed partnership maintaining separate identities

6.27
At a workshop in December 2004, Transit and Tasman District Council held initial discussions on the potential for developing a partnership to combine the administration of local roads and state highways in the Tasman district. Transit and the council had already entered into a joint maintenance contract in 2004 for an isolated section of state highway in the Golden Bay area with local roads running off it. The council told us that, at the time, this was working well, and the council and Transit decided to explore the possibility of wider collaboration. Transit wanted greater physical presence and critical mass in the region and to be accessible to, and able to communicate with, road users.

6.28
Transit and the council drew up an agreement on how the partnership would be explored in January 2005. The agreement was never signed, but Transit and the council commissioned a feasibility study³ to examine options for working together. Joint objectives for the collaborative initiative were agreed. These were to:

• maintain separate identities;
• exclude capital works;
• seek an improved level of service provision through joint operation;
• make savings on professional and physical works services;
• have regional programming and implementation;
• develop the network for strategic advantage;
• improve the relationship between the council and Transit; and
• develop skilled asset management competitiveness in the region.

6.29
Transit and the council explored options for working together within the boundary of Transit and the council wanting to maintain separate identities. The feasibility study explored three different governance models:

• retaining the current situation of separate contracts - the study found that this model did not provide a viable platform on which to improve delivery and cost;
• entering joint contracts that streamlined the services provided - the study found that this model had the ability to provide a satisfactory balance between retaining the individuality of each party and having enough joint activities to make savings; and
• setting up a separate road management unit governed by a board of directors with an independent chairman - the study found that this model offered a single focus on roading in the region and the ability to get the most efficiencies.

Expected benefits

6.30
Using financial modelling, the feasibility study estimated that the proposed joint contracting model for working together would yield cost reduction savings to Transit and the council of $17 million over 16 years, split roughly evenly between Transit and the council. Two important assumptions were made in estimating the savings, which meant that the savings were potentially overstated:

• The financial modelling assumed that there would be one contract for physical works and one for professional services to cover the entire geographic area of the council - at the time, the council's maintenance contracts were divided into three geographic areas and the feasibility study acknowledged that the value of the estimated savings could be reduced by 20% if there were three contracts for three geographical areas rather than one.
• The financial modelling assumed that the savings from the proposed joint contracting would be similar to those from a performance-specified maintenance contract, based on the council and Transit constructing an extremely competent and robust contract.

Reasons proposal did not proceed

6.31
From the views expressed in the feasibility study, there appeared to be differences between Transit and the council from the start, narrowing the options for collaboration. The first objective was to maintain separate identities. The council did not favour a model similar to the Marlborough Roads office. Also, the council had significant concerns about its ability to continue to exercise its current level of control if a separate road management unit was set up, especially if the manager of the unit was a Transit employee as Transit required. The council indicated during the feasibility study that these concerns precluded it from participating with Transit in a separate road management unit.

6.32
The proposal did not proceed after the feasibility study. The council told us that it sensed that Transit was not as keen to proceed as before. The council also told us that, in exploring the proposal, it saw collaboration as a possible opportunity only. It thought that existing arrangements worked well and that the network was well run. Also, existing maintenance contracts did not come up for renewal at the same time until mid-2009, which would have made proceeding with the proposal difficult. The council told us that it would be interested in exploring joint contracting again when the contracts came up for renewal.

1: Feasibility Report for Public Consultation - Remarkable Roads (2003), Transit New Zealand, Queensland Lakes District Council, and Central Otago District Council.

2: The Taranaki Mayoral Forum Roading Cluster Study (November 2003), Synergine Strategic Limited, Auckland.

3: Tasman District Council/Transit NZ Joint Road Network Management Feasibility Report, (August 2005), MorrisonLow (report to Tasman District Council and Transit).