Part 5: Auckland City Council's response to issues about footpaths work

Auckland City Council: Management of footpaths contracts.

5.1
In this Part, we discuss:

5.2
The Council has had to deal with a range of issues that have arisen about its footpaths work. A number of these issues have been raised as queries in the public domain.

Our overall conclusions

5.3
Generally, the work that the Council has done to investigate various issues relating to its footpaths work has been extensive and reasonable. Overall, we are satisfied with the Council’s response to the individual matters raised and have concluded that the overall integrity of the Council’s procedures was not undermined.

5.4
However, a number of people we interviewed raised concerns about the lack of integration and consistency between the various ways that issues get raised and dealt with by the various parts of the Council. Accordingly, we consider that the Council may wish to consider how it can address these concerns.

5.5
Some of the allegations raised about the Council’s footpaths contracts involved matters of probity. Although we consider that the Council’s response to the individual allegations has been reasonable, we nevertheless encourage the Council to continue its efforts to reinforce the importance of maintaining appropriate standards of probity and conduct. This should help to reduce the likelihood of such issues arising in the future.

How the Council generally identifies and responds to issues

5.6
The Council’s involvement in footpaths work has been the subject of extensive queries raised both internally and publicly, over and above those that were the immediate focus for our inquiry. As a result, the Council has done extensive work to address the matters raised.

5.7
The relevant Council procedures cover:

  • media queries and communications;
  • personnel policies, including code of conduct, ethics, conflicts of interest, gifts and inducements;
  • the provisions of the Protected Disclosures Act 2000; and
  • the provisions of the Local Government Information and Meetings Act 1987.

5.8
The Council’s Risk and Assurance department carries out an annual programme of planned work, and also responds to issues that arise during the year. The department maintains a log of issues, and tracks and records the resolution of these issues. Other parts of the Council have different ways of identifying and tracking the resolution of issues.

How the Council responded to concerns about probity in relation to footpaths contracts

5.9
At the time we began our inquiry, concerns were being raised about probity aspects in the context of the imminent award of contracts starting on 1 July 2009.

5.10
We discussed the Council’s approach to probity audits as part of its procurement process for these footpaths contracts in paragraphs 3.50-3.62.

Results of the Risk and Assurance department’s investigations

5.11
The Council’s Risk and Assurance department has carried out various investigations about matters of probity for the Council’s footpaths contracts. Some of these reviews were looking at:

  • Review of compliance with the Council’s Media Policy: This review was carried out in response to extensive media interest in the Council’s footpaths work, which led to protracted dealings between Council staff and the media. The review found that Council staff had generally complied with the Council’s Media Policy. It suggested some improvements for the Council to make in the way it handles media liaison.
  • Review of compliance with the Council’s policy for communications, ethics, and integrity: This review considered the actions of key members of the Transport division during the footpaths tender process. It found no evidence of breaches of the code of conduct, partiality with respect to potential suppliers, conflicts of interest, or inappropriate behaviour.
  • Review of integrity of processes around and control of footpaths contracts: This review concluded that there was adequate monitoring, management, and control of footpaths contracts (with appropriate vetting around price, quality, and site safety) and that the Council had appropriate processes for contract payments. It also found that there was no evidence of conflicts of interest for contract managers, unethical behaviour, or inappropriate relationships.
  • Review of allegations of conflicts of interest relating to a Council staff member attending a 2007 Rugby Sevens event: The review concluded that the staff member attended in a personal capacity.
  • Review of integrity of the tender process for the 2009 footpaths contracts: This review investigated allegations that a Council staff member involved in the 2009 footpaths contract procurement process attended a Christmas function hosted by John Fillmore Contracting Limited and received a ham. The review considered compliance with Council procedures during the 2009 footpaths contracts tender process, potential conflicts of interest and any effect on tender evaluation, and compliance with the Council’s Gifts and Inducements Policy. The review found non-compliance with the Gifts and Inducements Policy, and the matter was subsequently dealt with as a personnel issue. The review noted improvements to be made to the Council’s conflicts of interest procedures. However, the review found that the isolated incident had not undermined overall compliance with the Council’s procurement procedures.

Independent review of tendering processes for all transport contracts starting from 1 July 2009

5.12
The Council commissioned a further review by Christmas Gouwland Limited (referred to in the Chief Executive’s report to the Council meeting on 23 April 2009), which was completed in March 2009. This review considered due diligence of transport contracts – process and evaluation of preferred tenderers. This review covered all transport contracts that were being procured starting from 1 July 2009.

5.13
The summary findings for this review noted nothing of any concern in relation to any of the preferred tenderers, and that some issues identified in relation to one of the tenderers had been satisfactorily resolved. It also recommended some areas for improvement, which the Council has endorsed.

Our conclusions

5.14
We are satisfied with the Council’s approach to dealing with the probity concerns raised and with the integrity of the Risk and Assurance department’s investigations and the independent review of the tendering process for the 2009 footpaths contracts. We consider that each area that was investigated has been dealt with appropriately.

5.15
In our view, the Council’s response to these concerns about probity has been adequate, reasonable, and, in many instances, extensive.

How the Council responded to allegations that it paid too much for footpaths work

5.16
We have explained in Part 4 how the Council responded to questions about footpaths measurements during 2005/06. In this Part, we discuss the investigations carried out by the Council’s Risk and Assurance department.

5.17
After the initial questions were raised internally, and the Transport division’s allocation of additional resource to checking measures, the Council’s Risk and Assurance department became aware of these allegations and carried out initial inquiries into the matter. The Risk and Assurance department concluded that there were no grounds to investigate further as the Transport division had the matter in hand.

5.18
We have noted that neither the Contract Manager nor the Transport division raised this matter directly with the Risk and Assurance department at the time, and that the involvement of the Risk and Assurance department was at its own instigation.

Review of the Transport division’s investigation

5.19
Allegations about over-claimed measurements resurfaced publicly in mid- 2007. The Council’s Risk and Assurance department investigated the contract payment processes and the Transport division’s investigation of the matter raised, concluding that “… the investigation … did not substantiate any anomalies and … the matter was satisfactorily concluded …”.32

5.20
The report also noted that:

[The] review was hampered by the lack of documentation on the contract files … [including] … meeting minutes … correspondence … [and the Transport division’s] … investigative documents not being found ...

5.21
The report also noted the following concerns about the Transport division’s investigation:

  • the length of time taken for the investigation – the investigation effectively continued up to January 2007, the date at which the contractor was formally notified that no further investigation of measurements was being carried out;33
  • the involvement in the investigation of the contract engineer’s representative, rather than an independent person; and
  • the lack of formal documentation.

5.22
In carrying out these reviews, the Risk and Assurance department took assurance from the process of auditing included in the contract quality plans, and from the Council’s payment approval processes. The reviews did not include detailed testing of these processes, and we are satisfied that the Risk and Assurance department had reasonable grounds for not doing so at the time.

5.23
We have, nevertheless, considered both these processes in carrying out our inquiry, and have explained them above. We have no problem with how the Council applied these processes overall.

5.24
The Council’s Risk and Assurance department also reconfirmed its earlier investigations into alleged over-claimed measures in 2009, before the Council finalised its decision about the award of new transport contracts.34

External review findings

5.25
This follow-up work by the Risk and Assurance department also referred to a review by Opus International Consultants Limited, carried out for the Transport division.35 This review considered the documents relating to the progress claims investigation by the Transport division between 2005 and 2007. It notes that, despite missing documentation, “… there is sufficient information available to enable … a definitive opinion …”.

5.26
The consultant’s review also endorsed the findings of the 2007 Risk and Assurance department’s report and concluded as follows:

In summary, the matter, while not being handled in an entirely professional manner, was resolved adequately according to my reading of the information available. The different footpaths measurement audits carried out by ACC staff, JFC and TP Civil were all within allowable tolerances and sufficiently independent of each other. Based on said audits the initial anomalies raised were unable to be substantiated. I feel that ACC could have better managed the investigation (particularly with respect to communication with JFC). However these internal operational issues did not alter the ultimate outcome, which in my opinion was the only logical one based on the evidence presented.

5.27
In our view, the Council’s response to these matters has been reasonable and we are satisfied with the conduct and findings of the various investigations and reviews.

How the Council responded to allegations about overlapping payments for work on kerbs and channels

5.28
On 18 June 2009, a headline in the New Zealand Herald alleged: “City pays twice for some footpaths work”. The allegation was that the Council’s footpaths contracts do not allow for the situation where work on kerbs and channels is done at the same time as work on the adjoining footpath. There is a small area of overlap between these works, and the contractor can claim for the kerb and channel work and the footpath work without adjustment to reflect the overlap area, thereby receiving payment twice for the same work.

5.29
In response to this allegation, the Council commissioned an external review. Because this allegation and review arose while we were conducting our inquiry, we agreed with the Council that we would consider the scope and findings from the review to the extent necessary, given the respective areas of focus for the review and our inquiry.

External review findings

5.30
The findings from the review were published by the Council on 9 August 2009. The key findings and recommendations from the review were that:

  • there is an overlap, resulting in an estimated overpayment by the Council to the contractor of $140,000, which needed to be further substantiated;
  • the Council was aware of the overlap, but effectively decided not to pursue the matter with the contractor at the time, and this decision was a reasonable commercial decision in the circumstances;
  • the overpayment could nevertheless be pursued by the Council with a view to reaching a fair and reasonable agreement with the contractor, in accordance with the contract. However, this could trigger counter-claims by the contractor, which the Council would need to consider in deciding whether to pursue the matter;
  • the matter should have been resolved earlier, and should be now, by amending the standard engineering details and the rates included in the footpaths contracts, to cover the situation where footpaths work on kerbs and channels and roading work are done at the same time;
  • that the management, administration, and supervision of the Council’s footpaths contracts appears to have been significantly improved during the previous two years; and
  • there were a number of other areas for improvement.

Additional resources

5.31
One of the recommendations from this review was that the Council should employ additional resources on its footpaths contracts. This included the use of a specialist quantity surveyor to assist with procurement and with reviewing claims by the contractor, and the greater use of auditing and on-site inspections to identify and resolve issues that arise.

5.32
We note that the Council has recently decided to increase its staffing levels for footpaths, through the recruitment of a quantity surveyor. The Council has noted that, with the new contract rates for footpaths effective under the current contracts, there is a higher variation risk. The Council believes that the additional resource will help it to manage this risk.

Second review commissioned

5.33
After the external review, the Council decided to pursue the overpayment with the contractor, and the contractor decided to counter-claim against the Council.

5.34
The Council later commissioned a second review, to ascertain the value of the Council’s claim against the contractor in relation to work on kerbs and channels, and to assess the contractor’s counter-claim against the Council.

5.35
This second review was finalised on 12 October 2009. The Council proceeded to negotiate and agree a settlement with the contractor covering all claims later that month. The final outcome was a payment by the Council of $360,971 to the contractor. This settlement finalised outstanding contractual matters between the Council and the contractor up to 30 June 2008. The final account for the year ended 30 June 2009 is still to be agreed, and there could be additional claims relating to this final year.

Our conclusion

5.36
In our view, the Council’s response to these matters has been reasonable and it has taken sensible steps to further improve its management of footpaths work.

32: Review into Transport contractor payment processes and TARS investigation into contract claims, 11 May 2007.

33: This notification was by letter dated 18 January 2007.

34: Transport Media Inquiries in relation to an alleged overpayment on footpaths contracts TARS/04/348 and TARS/04/349, 4 May 2009.

35: Opus International Consultants Limited, TARS investigation into contractor claim for footpaths contracts 348 and 349 (2005-2007) – Review of Facts, 30 March 2009.

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