Part 4: Management of the two 2004-09 footpaths contracts
4.1
Allegations were made that the Council had spent too much on footpaths work completed in 2005/06. Given these allegations, which we also address in Part 3, we decided to review all payments made by the Council under the two 2004-09 footpaths contracts.
4.2
We wanted to see whether the Council had an effective process in place to ensure that payments made under the two 2004-09 footpaths contracts were appropriate and that the Council had followed the process.
What we looked at
4.3
In this Part, we discuss:
- overall expenditure on the two 2004-09 footpaths contracts;
- the stopping of red footpaths work in 2004;
- payments made under the two 2004-09 footpaths contracts;
- the Council's contract claims and payment process and how they were applied;
- whether the Council paid too much for footpaths work in 2005/06;
- the current status of payments for the two 2004-09 footpaths contracts; and
- changes to the Council's contract claims and payments process.
Overall conclusions
4.4
In general, we found that the Council had adequate contract claims and payment procedures in place and followed them.
4.5
However, we did find that there was some uncertainty, and different views, about what were the relevant procedures that should have applied to payments at different times throughout the duration of the two 2004-09 footpaths contracts.
4.6
We also found mixed practice in how the Council's procedures were applied and how they were administered, particularly in the way that documents relating to the contracts were completed and filed. This could partly reflect the historical nature of many of these documents and changes in personnel.
4.7
We have made recommendations for the Council to improve its administration of footpaths contracts in some areas.
4.8
In response to allegations that it had paid too much for footpaths work in 2005/06, the Council remeasured the work that had been claimed for payment by the contractor. The work was later measured again and showed that the original measurements were correct within acceptable tolerances.
4.9
Overall, we are satisfied that the Council had a reasonable basis for the measurements it used to make payments under the 2004-09 footpaths contracts. We are satisfied that any over-payments were within acceptable amounts.
Expenditure on footpaths work under the Council's two 2004-09 footpaths contracts
4.10
We looked in detail at the Council's expenditure on footpaths work for the five-year period covered by the two 2004-09 footpaths contracts. Figure 4 summarises expenditure by the cost of each major component of footpaths work in each financial year from 1 July 2004 to 30 June 2009.
Figure 4
Summary of expenditure on major components of work completed under the 2004-09 footpaths contracts
| 2004/05 $million |
2005/06 $million |
2006/07 $million |
2007/08 $million |
2008/09 $million |
|
|---|---|---|---|---|---|
| Footpaths and vehicles crossings | 5.7 | 6.8 | 21.9 | 18.8 | 13.2 |
| Kerbs and channels | 1.0 | 0.6 | 3.7 | 6.1 | 3.5 |
| Service covers | 0.4 | 0.4 | 1.7 | 1.3 | 1.0 |
| Bluestone removal | 0.1 | 0.1 | 1.2 | 1.8 | 0.9 |
| Overhead and underground | 0.2 | 1.7 | 0.7 | 0.0 | 0.0 |
| New berm | 0.2 | 0.3 | 1.2 | 1.9 | 1.5 |
| Other work | 1.6 | 1.3 | 1.5 | 1.5 | 2.2 |
| Total expenditure ($106.0 million) | 9.2 | 11.2 | 31.9 | 31.4 | 22.3 |
| Cumulative expenditure | 9.2 | 20.4 | 52.3 | 83.7 | 106.0 |
4.11
Figure 4 is based on a combination of information from monthly contract claims and the Council's FAMM database, compiled for the Council by Opus International Consultants Limited.
4.12
By comparing this information with the actual payments made under the two 2004-09 footpaths contracts, we have noted differences (that is, the data used to produce the summary in Figure 4 totals $106 million and the total actual payments shown in Figure 6 total $105.7 million). We consider that the differences could reflect incorrect data in the Council's asset databases.
4.13
In our view, the Council needs to be satisfied that only correct information about completed work is recorded in its asset databases. If the Council records information about partially completed work or incorrect information and relies on it later, the Council risks making poor decisions related to managing its assets. To ensure that the information is correct before it is entered into the asset databases, we consider that the Council should consider improving its process for reconciling the relevant information.
| Recommendation 2 |
|---|
| We recommend that Auckland City Council reconcile information about completed footpaths work with financial information about payments for the work, before recording the information in asset databases. |
Footpaths and vehicles crossings expenditure
4.14
The major costs under the 2004-09 footpaths contracts were for footpaths and vehicle crossings. Significant work on kerbs and channels was also completed under the 2004-09 footpaths contracts, particularly in the contracts' later years.
4.15
The Council's work on kerbs and channels is usually dealt with under its roading contracts, although it can be done as part of footpaths work. At times, work to renew footpaths involved replacing kerbs and channels, and it was more efficient and expedient to do this under the footpaths contracts. In this situation, the work to replace kerbs and channels overlapped with the footpaths renewals. The contractor claimed, and received, the appropriate rates for the kerb and channel work and the footpaths work, without adjustment to reflect the overlap area. We discuss this overlap further in paragraphs 4.72-4.74 and 5.28-5.36.
Figure 5
Major elements of the footpaths and vehicle crossings component of expenditure (shown in Figure 4)
| 2004/05 $million |
2005/06 $million |
2006/07 $million |
2007/08 $million |
2008/09 $million |
|
|---|---|---|---|---|---|
| Red oxide exposed footpaths | 1.1 | 0.0 | 0.0 | 0.0 | 0.0 |
| Black oxide exposed footpaths | 1.9 | 3.9 | 11.9 | 9.6 | 6.5 |
| Residential vehicle crossings | 2.3 | 2.5 | 9.1 | 8.4 | 6.2 |
| Other work | 0.4 | 0.4 | 0.9 | 0.8 | 0.5 |
| Total cost of footpaths and vehicles crossings ($66.4m) | 5.7 | 6.8 | 21.9 | 18.8 | 13.2 |
| square metres |
square metres |
square metres |
square metres |
square metres |
|
| Quantity of footpaths and vehicle crossings (Total 882,096 square metres) | 85,763 | 97,918 | 291,015 | 244,902 | 162,498 |
| $/sq metre |
$/sq metre |
$/sq metre |
$/sq metre |
$/sq metre |
|
| Average cost of footpaths and vehicle crossings* (Overall average = $75/square metre) | 66 | 69 | 75 | 77 | 81 |
* Average costs depend on work mix, and do not necessarily equate to specific contract rates.
Red footpaths work stopped in 2004
4.16
We understand that the Council stopped using red oxide for footpaths work in November 2004 after a personal complaint by a Council staff member. The complaint highlighted that it was difficult to achieve the appropriate standard and consistency of finish required by the recently revised Footpaths Policy, when using red oxide.
4.17
The complaint caused all work on red chip footpaths to be immediately stopped and prompted Council staff to reconsider the Footpaths Policy. Changing the policy formally took 21 months, although the change that was eventually ratified (to use black oxide for all footpaths work) was applied in practice immediately following the complaint.
4.18
Footpaths work under one of the Council's two footpaths contracts (Contract 348, covering the area where the complaint had arisen) was temporarily suspended. The contractor was stood down between 19-26 November while the footpaths work was rescheduled to footpaths work designated as black chip.
4.19
The Council told us that its rescheduled work was able to be accommodated within the Council's approach to prioritisation and equitable distribution of footpaths work across the city.
Compensation paid to contractor
4.20
The Council paid compensation of $118,150 to the contractor for temporarily suspending footpaths work while the footpaths work was rescheduled.
Changes to the Footpaths Policy were not made in a timely way
4.21
The Council has told us that, once it became clear that a quick solution to the problem could not be found, it should have formally reconsidered its Footpaths Policy, and that it should have revised its Footpaths Policy in a more timely way.
4.22
We agree. In our view, the problem identified with the application of the Council's recently revised Footpaths Policy in November 2004 should have been identified earlier, and dealt with in a more timely way.
Payments made under the two 2004-09 footpaths contracts
4.23
We have prepared a summary of the monthly payments26 to the contractor under the two footpaths contracts starting on 1 July 2004.27
Figure 6
Summary of payments made to the contractor under the two 2004-09 footpaths contracts
| Contract | Original budget $m |
2004/05 actual $m |
2005/06 actual $m |
2006/07 actual $m |
2007/08 actual $m |
2008/09 actual $m |
Total paid $m |
|---|---|---|---|---|---|---|---|
| 348 | 13.7 | 4.9 | 5.8 | 24.4 | 25.7 | 14.9 | 75.7 |
| 349 | 13.0 | 4.7 | 5.8 | 5.5 | 8.1 | 5.9 | 30.0 |
| Total | 26.7 | 9.6 | 11.6 | 29.9 | 33.8 | 20.8 | 105.7 |
| Cumulative payments | 9.6 | 21.2 | 51.1 | 84.9 | 105.7 | ||
4.24
The Council typically made one payment under each contract each month. The main monthly payment covers work done by the contractor in the previous month. In some months, no payments were made because no work was done in the previous month. In some months, more than one payment was made to cover additional matters such as administration charges and escalation costs.
4.25
A breakdown of the monthly payments made under Contracts 348 and 349 is provided in Appendix 2 (2004-09) and Appendix 3 (2005/06).
4.26
As a result of the Council's 2006/07 TAMP (see paragraphs 2.7 and 2.20-2.21), the Council significantly increased the amount of footpaths work during the course of the 2004-09 footpaths contracts and, therefore, needed to significantly increase contract values to accommodate higher levels of expenditure. The Council approved these higher contract values (see paragraphs 3.21-3.26).
The Council's contract claims and payment process
4.27
For each of the Council's payments to the contractor under the footpaths contracts, we checked to see that payment was supported by documentation, and authorised in compliance with the Council's relevant procedures.
Figure 7
Overview of the monthly contract claims and payment process
4.28
The Council's monthly contract procedures include a focus on two matters:
- paying the contractor appropriate amounts for work done, based on payment authorisations; and
- confirming a number of matters relating to the monthly contract claims, based on contract review forms.
4.29
The Council requires designated staff to sign payment authorisations and contract review forms to confirm that the relevant steps have been followed during the authorisation process.
Use of job tracking forms
4.30
The Council's job tracking form (see paragraph 2.48) provides a basis for summarising the physical measurement of footpaths work planned and completed, as required by the footpaths contracts. Such information is needed by the Council in a way that is consistent with the Council's asset databases.
4.31
The Council did not retain job tracking forms in a significant number of months during the period covered by our inquiry. Council staff told us that this was because there was no need to do so, once the process of checking the contractor's claims for payment, and of inputting the relevant works data into the Council's systems, was complete. This process of checking involved sighting evidence of approval and signature of the contract review form and the payment authorisations. In our view, the Council should have retained these documents.
How the contract claims and payment process was applied
Mixed practices relating to payment procedures, documents, and contract files
4.32
Generally, we found mixed practices in completion of the documentation and the way it was filed. While in many instances documents that we wanted to look at were located, they were not always readily accessible. This theme is consistent with the findings of some of the reviews carried out by the Council's Risk and Assurance department, and with the findings from other external reviews commissioned by the Council.
4.33
We consider that there have been times when the Council's procedures were uncertain, and there were different views about what were the relevant procedures that should have applied to expenditure and payments. In one sense this was not surprising because we have looked at a five-year period and there has been significant change in procedures and personnel during that time. We note that the Council has been evolving and improving its procedures relating to footpaths contracts in more recent times.
4.34
We were not given a clear definition of what the various signatures on the payment authorisations and the contract review forms were intended to represent, nor how the two forms related to each other (for example, authorisation or confirmation that data had been checked). From our discussions with Council staff, it was clear that there were different views on what the signatures represented.
4.35
The Transport division has produced guidance on its current procedures, and makes these available to staff online through its Transport manual. However, the Council has been unable to locate complete policies or guidance that would have applied to its footpaths work during the earlier periods covered by our inquiry.
Review of contract files
4.36
For each month of the five-year period of the footpaths contracts, we generally saw evidence that Council staff had reviewed contract files. This evidence included the relevant signatures of at least three staff members on each contract review form.
4.37
Up to 2007, where the monthly value of work was in excess of an amount specified on the contract review form ($400,000 or $600,000), an additional Council staff member (usually a Group Manager) signed. The Council has been unable to identify the source of these financial limits that were applied in practice before 2007. From 2007 onwards, the contract review form was changed to remove the specified financial limits.
Monthly payment queries
4.38
From our discussions with staff and former staff, we are aware that the Council's monthly payment processes and timetable creates pressure to defer the full resolution of any issues until following payment periods. We have also noted above that audits under the contract quality plans (see paragraphs 2.64-2.67) are effectively one month in arrears.
4.39
On the monthly claim files we reviewed, we found evidence that claims for payment by the contractor were being scrutinised by the Council's staff before being finalised. In particular, we noted that amounts were being queried and, in some instances, withheld from some of the Council's payments, or paid subject to subsequent clarification with the contractor.
4.40
The documentation in the claim files, including the files for subsequent months, did not always provide information about the ultimate resolution of these matters. Nor did the monthly sign-offs require confirmation from staff that such issues from previous months had been satisfactorily resolved.
4.41
The individual queried items that we noted on the contract claim files have been provided to the Council.
Our conclusions
4.42
In summary, the Council had substantial records to support payments made under the 2004-09 footpaths contracts, although the documents were not in all cases readily accessible. We also found significant evidence of procedures being applied and the involvement of a wide range of Council staff in this.
4.43
There were no fundamental flaws or gaps in the Council's contract management process. However, there were areas where the Council could generally improve consistency of practice. In particular, the Council needs to improve how it records queries being raised during monthly reviews of contract claims, and the resolution of these queries.
| Recommendation 3 |
|---|
| We recommend that Auckland City Council improve the way it documents the raising and resolving of queries that arise during monthly reviews of contract claim files. |
Comparison of cumulative payments and values
4.44
We compared the Council's record of the cumulative values of work done, as reflected on its progress payment schedules, with the actual cumulative payments.
4.45
We note that the Council's progress payment schedules and the contractor's cumulative claims for payment were in agreement, but that both differed by $1.4 million from the actual total cumulative payments made under the footpaths contracts at the end of the 2004-09 period.28
4.46
We also noted a difference of $2 million within the Council's month-60 progress payment schedule, between total cumulative payments (paid and claimed, including month 60) under the footpaths contracts and the total contract sums.29 As month-60 is the last month of the five-year period of the 2004-09 footpaths contracts, we would have expected a close alignment between these two numbers.
4.47
The Council has advised us that the cumulative numbers in the progress payment schedule are updated manually, and that it is likely that errors were made in these updates in earlier months that remained unidentified and unadjusted.
Our conclusions
4.48
In our view, the Council should at all times have a clear position on the cumulative value of its contracts and related expenditure.
4.49
We have also noted in Part 3 that Council staff did not provide accurate information about cumulative values to councillors when seeking contract approvals. Although this is not good practice, we are satisfied that the matter is of an administrative nature that did not pose a major risk and would not have led to serious consequences. It could be remedied by reconciling relevant sets of information.
| Recommendation 4 |
|---|
| We recommend that Auckland City Council regularly reconcile cumulative amounts (both expenditure and contract values) for footpaths contracts, and clearly record the position agreed with the contractor in contract and financial documents. |
Did the Council pay too much for footpaths work in 2005/06?
Allegations about measurements for footpaths work
4.50
We looked into an allegation that the Council paid too much for footpaths work because the measurements were over-stated in certain claims for payment.
4.51
Questions about this matter first arose internally during the 2005/06 financial year, the second year of the 2004-09 footpaths contracts.
4.52
The internal questions were raised by a newly appointed Contract Manager who joined the Council just before June 2005, and continued to be raised until he left the Council in June 2006. These questions surfaced publicly in later years. They related to whether the measurements underpinning payments by the Council were over-stated and, therefore, whether the payments made by the Council exceeded the value of the physical work completed by the contractor.
4.53
The contractor provides the Council with measurements of the footpaths work completed to support the monthly claims for payment. These measurements are fundamental in determining how much the Council pays the contractor, as the payment rates that are specified in the footpaths contracts are applied automatically to the measurements submitted with the claim.
Evidence of contract reviews
4.54
We decided to look in detail at the payments made under the 2004-09 footpaths contracts from May 2005 to July 2006 (the period of employment of the Contract Manager who raised questions about the measurements).
4.55
As discussed in paragraphs 4.36-4.37, we saw evidence that contract review forms had been completed for the whole five-year period covered by the 2004-09 footpaths contracts, including this narrower period. We also looked at the individual payments in each month from May 2005 to July 2006, and the payment authorisations and documentation that supported them.
4.56
For each contract, there was at least one monthly payment during this period, with the exception of July 2005 for Contract 348. In September 2005, two payments were made under Contract 349; the additional payment (of $112,280) was for escalation costs.
4.57
In May 2005, the Council agreed to a contract variation of $118,150 for Contract 348 to allow for payment of compensation to the contractor. This compensation was the result of the Council temporarily suspending its footpaths work (between 19 and 26 November 2004) while work was rescheduled to footpaths work designated as black chip (see paragraphs 4.16-4.22).
4.58
We were originally unable to find all relevant documentation for one payment of $56,073 for escalation costs made in September 2005 under Contract 348. The documents that we saw initially were those dealing with the payment authorisation. Council staff subsequently found the contract review form, which was misfiled with the documentation for a subsequent month.
Evidence of payment authorisation
4.59
As noted above, the Council's procedures at this time did not make clear what the relationship was between payment authorisation and finalisation of the contract review form. It is also unclear how or whether this misfiling reflected the process followed at the time the payment was authorised.
4.60
Payments by the Council from May 2005 to July 2006 were recommended for payment by the Contract Manager. In all cases, there were at least two other signatures by Transport division staff on the payment authorisation. Typically, these signatures were from the Contract Services Manager and a Group Manager, and were in addition to the signatures required on the contract review form.
4.61
We generally found that the Council's payments were supported by a final version of the spreadsheets, including measurements, prepared by the contractor to underpin the claims for payment. Some differences were evident (see paragraphs 4.38-4.41).
4.62
We also found copies on the Council's files of each month's independent audit report covering the work completed the previous month, in keeping with the contract quality plans. These generally showed that no major issues were raised about measurements.
Remeasurement to check claims
4.63
The questions raised by the Contract Manager between June 2005 and June 2006 prompted the Council to devote additional resources to the process of checking the contractor's claims for payment, particularly the measurements of work done.
4.64
This Contract Manager arranged the remeasurement of a number of sites and compared the results with the measurements underpinning the contractor's claims for payment. This comparison highlighted significant differences between the two sets of measurements, beyond acceptable tolerances, suggesting that the Council had overpaid for the work completed on the respective sites. The Council notified the contractor about its concerns, and advised that it was reviewing the matter in detail.
Second remeasurement carried out
4.65
A process of remeasuring a number of specified sites was initiated that involved the Council's staff and representatives of the contractor, and also drawing on the work of the independent auditor under the contract quality plans. These remeasurements ultimately reconfirmed that the measurements underpinning the contractor's claims for payment by the Council were within acceptable tolerances.
Our conclusions
4.66
It is clear from our inquiry that there have been mixed views about the physical measurements of work completed under the Council's footpaths contracts, and about how the Council confirms that physical measurements of work proposed by the contractor provide a reasonable basis for making payments to the contractor.
4.67
In our view, the Council had a reasonable basis for being satisfied about the measurements it used to make payments under the 2004-09 footpaths contracts.
4.68
However, we consider that the Council needs to keep under review how it verifies measurements for its footpaths work, and the level of resources that it needs to do so effectively.
4.69
The level of resources allocated to confirming measurements has been a theme among the concerns raised and the findings of other reviews relating to the Council's footpaths work.
4.70
We note that the Council has recently decided to employ a quantity surveyor to assist with procurement and review of contract claims for footpaths work.
Current status of payments for the Council's 2004-09 footpaths contracts
4.71
On 30 June 2009, the last day of the Council's 2004-09 footpaths contracts, the financial amounts outstanding were:
- provision for the final month's work for which two payments were made in July 2009 totalling $1,469,478;30
- the maximum retentions of $200,000 for each of the two contracts. Half of these amounts have been released to the contractor since 30 June 2009; and
- an amount of $60,734.82,31 which was provided for but not paid, because the Council was querying this with the contractor and seeking more information.
4.72
In addition, the Council was at that time considering potential recovery from the contractor of money paid in relation to overlapping work on kerbs and channels. This was the subject of a technical review by a Council-appointed consultant. The contractor also submitted a claim for additional payment from the Council after 30 June 2009.
4.73
The Council commissioned a second technical review to ascertain the value of its claim relating to work on kerbs and channels, and to assess the contractor's claim for additional payment. The outcome from these two matters – resulting in an overall amount of $360,971 in favour of the contractor and therefore payable by the Council – is discussed later in this report (see paragraphs 5.28-5.36).
4.74
After the Council and the contractor agreed and settled these matters, the only year of the five-year contract for which the final account is outstanding at the time of finalising our inquiry is for the final year ended 30 June 2009.
Our conclusion
4.75
We are satisfied that the Council has taken reasonable steps to address and/or recover the appropriate outstanding amounts.
Changes to the Council's contract claims and payment process
4.76
While reviewing the contract claim files, we noted that there have been changes in the layout of the documentation supporting the contract payments. In August 2007, the Council introduced a new monthly assurance summary. This specifies, in detail, the steps that Council staff need to complete while reviewing each month's contract claims.
4.77
The job tracking form has evolved during the life of the footpaths contracts and has effectively moved online, with shared access for the Council and the contractor, since the Council introduced Primavera (during 2007/08) followed by RAMM Contractor (from 1 July 2009).
4.78
In the early years of the footpaths contracts, and before the introduction of the Council's new database systems, the information used to scope and schedule footpaths work was limited, and did not provide a good or consistent basis for monitoring and agreeing the actual physical work completed.
4.79
We were also told that in more recent years, and enabled by these new database systems, the Council has been able to more clearly specify the work needed, based on more reliable data and joint site visits with the contractor, before the work is carried out. Furthermore, once the work is carried out, the Council is more easily able to check that the measures of work completed, and subject to claim for payment by the contractor, are in line with expectations and are appropriate.
Our conclusions
4.80
In our view, the Council has improved its procedures for managing footpaths contracts and the way that it has applied those procedures during the eight-year period considered by our inquiry.
4.81
However, in keeping with most large and complex asset management systems, there are a number of places where the Council can tidy up its administrative processes. In this report, we have made a number of comments and suggestions and four recommendations for improvement.
26: Based on gross payments, netted down for GST, to reflect the underlying work being paid for.
27: Source: The Council's financial system; excluding an additional $5.140 million paid to John Fillmore Contracting Limited in relation to Queen Street work during the five-year period, and $0.009 million in relation to Newmarket.
28: Payments are lower by $1.4 million in relation to Contract 348, and higher by $2.8 million in relation to Contract 349.
29: $1.2 million for Contract 348 and $0.8 million for Contract 349.
30: Contract 348: $940,597; Contract 349: $528,881.
31: Contract 348: $27,460; Contract 349: $33,275.
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