Part 2: Overview of Auckland City Council's approach to footpaths work

2.1
In this Part, we provide an overview of the Council's approach to building and maintaining footpaths, including aspects of its organisational structure, management, policies and procedures, and contracting arrangements. We also summarise the context and timing of matters that led to our inquiry.

2.2
The term "footpaths work" includes building and maintaining footpaths, vehicle crossings, kerbs and channels, service covers, new berms, and other work related to footpaths.

Scale of footpaths work

2.3
The Council manages roads and other transport-related assets that have a combined replacement value of $1.9 billion. Footpaths are a significant part of this large asset base; they extend for about 2200km, cover an area of nearly five million square metres, and have a replacement value of about $300 million.

Budgets and expenditure on footpaths work from 2001/02

2.4
In 2001/02, the Council spent $6.4 million on its footpaths work. Expenditure peaked in 2007/08 at $54.7 million before falling to $28.6 million in 2008/09. The amount spent on footpaths work means that it is important for the Council to have robust processes for procurement and for managing related contracts, and effective and efficient ways to address any queries raised about such contracts.

2.5
The Council's procedures require that provision for footpaths work is made in its budget as a prerequisite for the approval of actual expenditure. In Figure 1, we set out the Council's annual budgets for footpaths work for the eight years from 2001/02 to 2011/12 and actual expenditure from 2001/02 to 2008/09. Figure 1 shows that actual expenditure (totalling $191.9 million) broadly tracked the budget (totalling $190.4 million) that the Council had provided for during this eight-year period.

Figure 1
What Auckland City Council budgeted to spend, and actually spent, on footpaths from 2001/02 to 2008/09 and what it plans to spend from 2009/10 to 2011/12*

	2001/02 $m	2002/03 $m	2003/04 $m	2004/05 $m	2005/06 $m	2006/07 $m	2007/08 $m	2008/09 $m	Budget 2009/10 $m	Budget 2010/11 $m	Budget 2011/12 $m
Budgets
General
- renew	4.950	6.150	9.345	9.752	9.907	31.347	30.000	24.360	22.513	22.513	22.513
- maintain	1.263	1.207	1.077	1.840	2.083	2.852	2.688	2.588	-	-	-
Queen St	n/a	n/a	n/a	0.780	11.450	14.323	15.957	1.309	n/a	n/a	n/a
Newmarket	n/a	n/a	n/a	-	-	0.926	4.169	0.140	n/a	n/a	n/a
Total budgets	$6.2	$7.4	$10.4	$12.4	$23.4	$49.4	$52.8	$28.4	$22.5	$22.5	$22.5
Actual
General
- renew	5.049	6.783	10.002	9.807	9.978	31.658	30.784	24.435	n/a	n/a	n/a
- maintain	1.362	1.290	1.153	1.838	1.999	2.771	2.840	2.534	n/a	n/a	n/a
Queen St	n/a	n/a	n/a	0.559	5.492	17.972	17.047	0.553	n/a	n/a	n/a
Newmarket	n/a	n/a	n/a	-	0.025	0.831	4.029	1.087	n/a	n/a	n/a
Total actual	$6.4	$8.1	$11.2	$12.2	$17.5	$53.2	$54.7	$28.6	n/a	n/a	n/a

* Amounts are based on the Council's financial system, Annual Plan, and/or Annual Report.

2.6
Figure 1 shows that, in the five financial years up to and including 2005/06, the Council spent $55.4 million on general footpaths upgrades.

2.7
The Council's 2006-16 long-term council community plan (LTCCP) proposed to upgrade 1500km of footpaths over 10 years at a cost of $270 million. Accordingly, in the first year of the 2006-16 LTCCP (the 2006/07 financial year), there was a major increase in the annual amount the Council spent on its general footpaths work.

2.8
Expenditure on Queen Street footpaths is shown separately in Figure 1 to reflect the Council's focus on upgrading the city's central business district (CBD). It excludes additional expenditure on streetscape works.

2.9
In the five years from 2004/05 to 2008/09, the Council budgeted to spend $43.8 million and actually spent $41.6 million on CBD footpaths work. Problems with removing trees delayed the Council's CBD footpaths programme and reduced the amount spent.

Planning for footpaths work

2.10
The Council manages its roads and transport-related assets, including footpaths, through its Transport Asset Management Plan (TAMP), which it updates periodically as required. The TAMP contains management, engineering, and financial plans for the Council's assets, and is consistent with the Council's other relevant strategies, plans, policies, and requirements.

Development of the Council's approach since the introduction of the Footpaths Policy in 2003

2.11
Before 1 July 2003, the Council's footpaths work focused mainly on maintaining existing assets.

Introduction of the Footpaths Policy in 2003

2.12
In June 2003, the Council finalised its Footpaths Policy after extensive consultation.¹ The Footpaths Policy applied to the Council's footpaths work and was integrated into its footpaths contracts from then on.

2.13
The two main changes introduced in the Footpaths Policy were to:

• focus on area-based renewal rather than minor local renewal; and
• enable the replacement of existing footpaths with new footpaths of the same colour, including red, particularly in the city's heritage and residential areas.

Assessment of the condition of footpaths in 2003/04

2.14
During 2003/04, the Council assessed the condition of the city's footpaths. The assessment showed that 70% of footpaths met the minimum acceptable standard (a rating of "good" or better, on a four-point rating scale).

2.15
The Council decided to significantly change its approach in keeping with its Footpaths Policy and fix the 30% of footpaths that were in an unacceptable condition.

Amendments to the Footpaths Policy in 2004

2.16
The Footpaths Policy was amended in September 2004. The amendment required the Council to consult with the relevant local Community Board on the choice of materials to be used.

2.17
The amended policy also clarified that the surface for vehicle crossings was to match the adjoining footpath surface. For example, where the Footpaths Policy required a red oxide exposed concrete footpath, it also required the adjoining vehicle crossing to be made of red oxide exposed concrete. The change was made in the interests of pedestrian safety because, where a vehicle crossing was a different colour to the footpath, this appeared to give priority to vehicles rather than pedestrians.

New five-point scale for rating the condition of footpaths

2.18
In 2006, at the time of preparing its 2006-16 LTCCP, the Council revised its system for rating the condition of footpaths. It adopted a five-point scale by introducing a new mid-point rating of "fair".

2.19
The "fair" rating was deemed to be the new minimum standard. Using this revised scale, the TAMP for 2006/07 shows that 93.3% of the Council's footpaths met the new minimum standard, with 72.2% assessed as "excellent" or "good" and requiring no maintenance.

2.20
The TAMP highlighted the general improvement in the proportion of footpaths rated as acceptable in the three years since the introduction of the 2003 Footpaths Policy.

2.21
The TAMP also noted that 6.7% of footpaths were still in an unacceptable condition, being "poor" or "very poor", and 21.1% of footpaths were assessed as "fair" and still needing maintenance. The TAMP proposed a significant level of renewal during the coming years.

Amendments to the Footpaths Policy in 2006

2.22
The Council decided to amend its Footpaths Policy again in August 2006.² From that time, all footpaths and vehicle crossings were to be made from exposed black chip concrete without coloured pigment (with some exceptions).

2.23
A paper³ by Council staff in May 2006 proposing changes to the Footpaths Policy explained that the exposed black chip concrete surface, while not the cheapest option, was cheaper than the red chip equivalent after allowing for the replacement of vehicle crossings to provide a consistent look and feel. The estimated cost of exposed black chip concrete was $121,200 a kilometre – about $61 a square metre – based on an average footpath width of two metres.

Review of the Footpaths Policy in 2009

2.24
The Council reviewed its Footpaths Policy in 2009, while preparing its final 2009-19 LTCCP. The purpose of the review was to consider using alternative surfaces for footpaths to make spending go further.

2.25
When we started our inquiry, the Council had not made any formal decision about changing surfaces for its footpaths, and continued to use the surfaces specified in the current Footpaths Policy. Since then, and after a review of the TAMP, the Council's Transport Committee and its Arts, Culture and Recreation Committee have noted a preferred option of broomed (rather than exposed aggregate) finish, with estimated savings of about $400,000 each year.⁴ Detailed criteria for this revised surface and a formal Council decision are expected to be finalised in April 2010.

Consultation with the community

2.26
The Council prioritises and schedules its footpaths work based on the engineering assessment of the asset's condition. Individual communities have no direct involvement in the prioritisation and scheduling of footpaths work. However, the Council recognised when it introduced the Footpaths Policy in 2003 that footpaths work should be spread equitably throughout the city.

2.27
The public was consulted in the lead-up to the introduction of the Footpaths Policy in 2003. Since then, the public has also been involved in consultation to finalise the Council's LTCCPs, which set out the Council's broad approach to its footpaths work.

2.28
The Council also provided for internal consultation with its Community Boards in the 2004 revision of the Footpaths Policy.

Where footpaths work fits in Auckland City Council's organisational structure

2.29
The Council's general footpaths work is carried out by the Transport division. Footpaths work in Queen Street is the responsibility of the Council's Arts, Culture and Recreation division.

2.30
The Council's Transport functions have been significantly reorganised since 2005. From February 1997 until January 2006, the functions were carried out by three units:

• Transport Planning;
• Transport and Roading Services (TARS); and
• Rapid Transport (subsequently merged with Transport Planning).

2.31
From July 2005, transport functions that had been spread across three other divisions (customer services, planning services, and enterprise services) were included and combined within the Transport division.

Reorganisation of transport functions in 2006

2.32
From February 2006, as part of its organisation-wide Re-alignment Project, the Council reorganised its transport functions into four units, and has retained that structure since then:

• Transport Strategy, Policy and Projects (since renamed Transport Policy) – to prepare strategies and policies, and develop new transport assets;
• Transport Assets and Operations (since renamed Transport Assets) – to manage and optimise the use of transport assets;
• Transport Programmes and Contracts (since renamed Transport Delivery) – to co-ordinate transport work programmes and manage contractors; and
• Parking Operations (since renamed Parking) – to operate parking assets.

2.33
At the time of the reorganisation, the Council noted that it expected the Transport division to have an increased profile, and that the changes within the division were considered an important part of the Council's overall organisational transformation.

2.34
The reorganisation was introduced in the context of changing national and regional transport frameworks, including establishing the New Zealand Transport Agency (NZTA) and the Auckland Regional Transport Authority. The Council also noted at the time that the reorganisation of the Transport division was expected to work well in the national and regional transport operating environment.

2.35
These organisational changes, in the 2005/06 financial year, happened just before the Council considerably increased the amount of footpaths work under the two 2004-09 footpaths contracts. The changes also coincided with other major project work within the wider Transport division, for example, Project Greenlane.⁵

Policies and procedures for managing procurement, budgets, and expenditure for footpaths contracts

2.36
The Council has established a range of policies and procedures that set out how it should manage procurement, approve budgets, and authorise expenditure for footpaths work. The Council progressively developed its approach using these policies and procedures during the eight-year period covered by our inquiry.

2.37
Significant relevant policies and procedures are:

• the Council's Procurement Manual;⁶
• the New Zealand Transport Authority Interim Procurement Manual;⁷
• the Transfund New Zealand Competitive Pricing Procedures Manual;⁸
• the Council's Contract and Supplier Management Manual (CSM); and
• the Council's Delegations Register.⁹

Procurement manual

2.38
The Council's Procurement Manual contains procurement procedures that apply Council-wide, and was finalised in March 2009. The manual took effect after the start of the procurement process for the current footpaths contracts starting on 1 July 2009.

2.39
The Council's transport activities attract significant levels of funding from the National Land Transport Fund, administered by the NZTA and its predecessor organisations, under the Land Transport Management Act 2003, although only a small part of the Council's work on footpaths is NZTA-funded. The Council also receives funding for transport work from other sources under other legislation.

2.40
The Procurement Manual recognises such external funding sources and legislative provisions, and stipulates that where these require a particular procurement process, then the Council should use that process. Because the Council's Transport division deals regularly with the requirements of NZTA and its predecessor organisations, its practices are generally consistent with, and similar to, the procurement requirements for these agencies. The Council was also involved in piloting the NZTA's new procurement manual.

Contract and Supplier Management Manual and Delegations Register

2.41
The Council's main policies and procedures that apply to the 2004-09 footpaths contracts were those contained in the CSM and the Delegations Register. Significant provisions are:

• relevant budgetary approval/provision is a prerequisite for the approval of expenditure;
• where the value exceeds $200,000, public or invited tenders or requests for proposals will be called for:
  • the relevant director must approve the proposed procurement method;
  • a representative from the Risk and Assurance department must be present at the opening of the tenders or requests; and
  • recommendations shall be reported to the Council through the relevant committee for adoption or otherwise; and
• for high contract values (more than $1 million):
  • contract documents must be approved by the city solicitors before calling for public or invited tenders, or issuing requests for proposals; and
  • tenders must be accepted by council resolution.

Computerised systems and databases to manage footpaths work

2.42
The Council has used a number of computerised systems and databases to manage its footpaths work:

• Roading Assessment and Maintenance Management database (RAMM database);¹⁰
• Footpaths Assets Maintenance Management database (FAMM database);
• the Primavera system; and
• RAMM Contractor.

2.43
The RAMM database is the Council's primary register of transport assets, and provides a basis for ongoing management. The RAMM database is organised by sections that correspond with physical areas in the city. At first, the Council also used the RAMM database for recording complaints about its footpaths work.

2.44
During 2003, the Council established a new front-end to the RAMM database, to draw down data on footpaths only and to generate displays and reports. This front-end is generally referred to as the FAMM database.

2.45
During 2007/08, the Council introduced the Primavera system. This system is used to scope and instruct footpaths work, and for recording and monitoring completed work.

2.46
The scoping and monitoring part of the Council's approach was replaced by RAMM Contractor from 1 July 2009.

Scheduling and tracking footpaths work

2.47
As part of the Council's annual planning process, footpaths work is scoped for the forthcoming financial year, based on information from its asset databases. The Council consults the contractor on the annual programme, which is detailed by month and by RAMM section. Short-term scheduling of footpaths work is achieved through ongoing operational discussions between the Council's staff and the contractor.

Job tracking form

2.48
The Council's footpaths contracts require the contractor to manage the programming and construction of the specified work using a job tracking form issued by the contract engineer. This form evolved throughout the period of the 2004-09 footpaths contracts from being paper-based to online, through the Council's introduction of Primavera and more recently RAMM Contractor.

Changes to contract arrangements for footpaths work

2.49
During the eight-year period covered by our inquiry, the Council has altered the focus of its footpaths work, consistent with the development of its footpaths approach and wider strategies. The Council has also progressively revised its general procurement approach. All these changes have affected the way the Council has contracted for footpaths work.

Roading Assets Maintenance Plan

2.50
Until 2003/04, the Council's footpaths work included maintenance and some renewal work. From 1 July 2004, footpaths maintenance was under a separate contract.

2.51
Around this time, the Council's Transport division was developing a Roading Assets Maintenance Plan (RAMP) to consolidate its approach to long-term maintenance in keeping with the Council's overall asset management plans.

Introduction of "smarter procurement"

2.52
In August 2007, the Council launched an initiative to achieve what it called "smarter procurement". This involved further organisational and procedural changes within the Transport division. It also resulted in the Council trying new types of contractual arrangements, including alliance agreements.

Contractors and terms of footpaths contracts

John Fillmore Contracting Limited

2.53
John Fillmore Contracting Limited has been a major provider of the Council's general footpaths maintenance and renewal work for more than 10 years, and has been the sole provider for the Council's footpaths renewal programme during most of that time. The company has done some work on CBD footpaths in conjunction with other contractors, and has carried out pavement works in St Patrick's Square. It has also sub-contracted to Fulton Hogan Limited for the Council's Central Connector project.

Contracts before 2001/02

2.54
Before 2001/02, the Council's footpaths work was carried out under three geographically-based contracts, fixed for periods of three years. Of these, one was completed by John Fillmore Contracting Limited, and the other two by City Contractors Limited. From 2001/02, John Fillmore Contracting Limited secured more of the Council's footpaths work. The contract arrangements are shown in Figure 2.

Figure 2
Summary of contract arrangements for general footpaths work for the periods before and after 2001/02

	Before 2001/02	2001/02 to 2003/04	2004/05 to 2008/09	After 2008/09
Contract terms (number of contracts)	Fixed three-year contracts (3)	Fixed three-year contracts (3)	Three-year contracts, with optional extensions for two additional years	Two-year contracts, with optional extensions for three additional years
Areas	3	2	2	2
Contractors (number of contracts)	City Contractors Limited (2)	n/a	n/a	n/a
	John Fillmore Contracting Limited (1)	John Fillmore Contracting Limited (2)	John Fillmore Contracting Limited (2)	John Fillmore Contracting Limited (2)
Original contract values	$10.3m	$14.1m	$26.7m	$19.8m
Final/current contract values	n/a	$25.6m	$106.2m*	n/a

* Combined, based on payments ($105.7m) plus retentions ($0.4m) plus disputed items ($0.067m) – that is, before recent finalisation of claims and agreement of final values.

Contracts from 1 July 2009

2.55
The Council contracted John Fillmore Contracting Limited for its two current footpaths contracts starting from 1 July 2009, for an area covering two-thirds of the city's isthmus.

2.56
A separate alliance agreement was put in place for footpaths work in the western third of the isthmus, starting from 1 July 2009.¹¹ The alliance agreement¹² started on 1 July 2008 (but excluded footpaths in its first year). The agreement is for an initial term of five years, with an option to extend, and is between the Council, Leighton Contractors Pty Limited, Blacktop Construction Limited, and MWH.

2.57
The two current footpaths contracts with John Fillmore Contracting Limited (both starting from 1 July 2009) are for an initial term of two years, with an option to extend for three years. The initial term is shorter than the three-year initial term for the preceding contracts. This decrease is intended to provide the Council with:

… the opportunity to introduce an alternative delivery method (possibly a further alliance) at the earliest practical time should the maintenance alliance prove successful in delivering better value to the rate payers over traditional forms of contract.¹³

Payments for footpaths work

2.58
The Council pays for footpaths work through its financial system, called SAP. Payment requires approval by Council staff who have the appropriate level of delegated authority.

2.59
Contractors provide the Council's Transport division with an initial estimate of their claim for payment (for accrual purposes), and are required to formally submit their monthly claim for payment by the third working day of the next month. Payment is initiated by the Transport division's administration team, after the division's operational staff check the contractor's claim.

2.60
Payments are based on internally-generated invoices, self-billed by the Council (consistent with industry practice), which show the agreed value of work completed, less retention, plus GST. The invoices and related payments are generated by the Council's Data Services division, after signature by authorised staff.

2.61
Payments for footpaths work are generally made in keeping with the Council's routine payment timetable, in the period after the contractor makes a claim for payment.

Contract rates and retentions

2.62
The footpaths contracts include a schedule of rates, and the contractor is entitled to be paid the relevant rates within this schedule for the associated physical work completed.

2.63
Payments under the contract are subject to retentions, set at 10% of the contract value, but capped at $200,000 for each contract, and with a defects period of 12 months. Claims by the contractor are generally paid on the 20th of the following month net of retentions, which are subsequently released to the contractor after satisfactory performance at the end of the defects period.

Contract quality plans

2.64
The Council's footpaths contracts specifically require plans to be in place to assure the quality of contract work (contract quality plans). One requirement of these plans is that the contractor must provide a system of internal auditing, by an independent auditor. We note that the independent auditor used by John Fillmore Contracting Limited for the 2004-09 footpaths contracts was T.P Civil Limited.

2.65
The audits required by the contract quality plans are performed on a sample basis and are required to cover at least 10% of each work category by quantity. Their aim is "… to verify work types/scheduling, quantities claimed, compliance with specifications ..."

2.66
Reports on the audits are required to be made available to the Council monthly, along with the claims for payment, to provide a basis for assurance over the Council's payments to contractors. Where an audit report is not provided with the claim then the Council is entitled to withhold payment until this is received.

2.67
The contract quality plans recognise the practical issue of allowing sufficient time to complete audits after each month-end, in the context of meeting the Council's timetable for making payments. The plans note that the audits will be " … one month in arrears to provide sufficient time to complete the audit after works have been completed."

Timeline of main changes in the Council's approach to footpaths work and other matters relevant to our inquiry

2.68
Figure 3 summarises the timing of the main changes that the Council made to its approach to footpaths work. It also shows the timing of matters that were the subject of allegations being raised when we started our inquiry. The two main allegations were:

• Measurements: It was alleged that the Council had paid too much for footpaths work in 2005/06 because some measurements of completed footpaths work were over-stated.
• Probity: It was alleged that the conduct of a Council staff member, who accepted a gift from a tenderer, had compromised the integrity of the Council's procurement of footpaths work in 2009.

Figure 3
Timeline of main changes in the Council's approach to footpaths work and matters arising

---

1: Presented to the Auckland City Transport Committee, and approved, on 4 June 2003.

2: Transport and Urban Linkages and Arts, Culture and Recreation Committees, 14 August 2006.

3: "Footpaths across the city", a paper to the joint extraordinary meeting –Transport and Urban Linkages/Arts, Culture and Recreation Committees, 9 May 2006.

4: Transport Committee resolution of 6 August 2009, and Arts, Culture and Recreation Committee, 9 September 2009.

5: Project Greenlane is a transport construction project to improve the road and transportation options in Greenlane and Great South Road.

6: The Procurement Manual was developed by the procurement team in the Council's Data Services division, and the latest version was finalised in March 2009. The manual follows the good practice guide Procurement guidance for public entities, published by the Controller and Auditor-General in June 2008.

7: Published October 2008.

8: Effective from 1 March 1997. Transfund New Zealand is one of NZTA's predecessor organisations.

9: Dated July 2002. Relevant sections of the Delegations Register are identical to its predecessor (which applied to the procurement leading to the award of the 2001 contracts), except that a new distinction was introduced between continuing contracts and lump sum contracts and the respective requirements that applied to each.

10: The database is maintained by CJN Technologies Limited and accessed online by the Council's staff.

11: For the area west of Grafton Gully and Dominion Road, including the CBD.

12: Includes work on general maintenance of all transport assets except signals and street lights; carriageway resurfacing and renewals; specialist surfacing treatment; footpaths and vehicle crossing renewals (from 1 July 2009); cycleway resurfacing and renewals; pavement marking; structural, drainage, and signage renewals; minor safety capital works; and Rugby World Cup-related capital works.

13: Procurement plan for the Transport division's road and footpaths term maintenance and renewal contracts, September 2008.

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