Part 5: Discussions with the community when the wastewater project began

5.1
We have already described some consultation or interaction with the community in previous Parts:

• The consultation was good when the Council initially decided that a reticulated scheme was necessary.
• The Council established a Community Liaison Group in 2000 as part of the project's governance arrangements.
• A community forum, as well as a separate meeting with the MRRA, was held in November 2001 as part of the RFP process to let the three bidders meet the community.
• There was a public meeting in August 2002 before the Council confirmed the decision to negotiate with Simon Engineering.

5.2
In this Part, we discuss:

• the general communication with the community;
• community concerns expressed during the tender process;
• requests for some independent assurance about what was being done; and
• our comments.

5.3
In summary, we conclude that KDC's work to communicate with the community and understand its views during this initial phase of work was reasonably good.

Overview of other communication with the community

5.4
In January 2001, while KDC and Beca were carrying out the preparatory work needed to go to the market for providers, the MRRA made a submission to the Community Liaison Group requesting that more information about the proposed scheme be given to the community. The submission asked for a public meeting to discuss the options and hear opinions. It also asked for a referendum so that the community could vote on what scheme it preferred. The Community Liaison Group considered the submission and advised the MRRA that final decisions on the nature of the scheme had not been made at that point.

5.5
During 2001, KDC used various mechanisms to communicate with the community. These included:

• regular Community Liaison Group meetings;
• regular articles placed by the PSC in the Mangawhai Memo – a fortnightly community-based newsletter;
• EcoCare Newsletters – a quarterly bulletin produced by the Community Liaison Group with the PSC; and
• public forums, including a stakeholders forum on 5 April 2001 and a community forum on 24 November 2001.

5.6
During the project, KDC also issued press releases, sent out individual letters to ratepayers, publicly notified Council meetings and public workshops, and published agendas, minutes, and related information on its website. Several Council meetings were held in Mangawhai so that the community could attend.

Community concern during the tender process

5.7
In February 2002, KDC received over 100 form letters from ratepayers asking KDC to reconsider its approach to the scheme. The ratepayers wanted the tender process suspended and a system design to be developed with the local community. The letters also requested that responsibility for implementing the scheme be transferred to a community trust or other such entity specifically set up for that purpose.

5.8
The Council decided to hold a special Council meeting in Mangawhai to discuss details of the consultation and decision-making process. This meeting was held on 16 March 2002 and included time for members of the public to put their views to the Council. At the next Council meeting on 27 March 2002, one councillor proposed notices of motion to suspend or cancel the entire process. The Council decided not to suspend the process. The reasons given for the decision were that "It is not commercially realistic to suspend the process at this stage, of the tendering for proposals, and the Council is satisfied that the project will deliver the best solution for Mangawhai." The Council also voted against cancelling the project.

5.9
In April 2002, the MRRA again sent a submission to the Council asking the Council not to take any binding decision on the scheme without a referendum or poll of ratepayers endorsing that decision.

5.10
The Council held a public meeting about the project on 17 August 2002. Several councillors, the Mayor, the Chief Executive, and representatives from Beca attended the meeting, along with about 180 members of the public. At the meeting, the MRRA presented a written submission outlining its concerns about the affordability and suitability of the proposed scheme. Other members of the public raised several other concerns, including whether the Local Government Bill then before Parliament would allow local authorities to contract out wastewater treatment services to private sector providers.

5.11
At its meeting on 28 August 2002, the Council considered a request from the MRRA to carry out a poll before the Council "… made a binding decision on the EcoCare project". The MRRA also provided a list of the issues that it wanted addressed. The Council declined the MRRA's request to carry out a poll and decided to offer Simon Engineering preferred proponent status.

Requests for some independent assurance

5.12
In September 2002, the Chief Executive decided to carry out a process to provide him with reassurance about the process used for the project to that date, including assessing whether legal requirements had been met and whether best practice was being used. The Chief Executive employed Mr Larry Mitchell to carry out this work. The terms of reference for the work, as set out in Mr Mitchell's report, involved reviewing a report prepared for the Council by the project managers on whether the scheme met the requirements of section 122C of the Local Government Act 1974.

5.13
Section 122C of the Local Government Act 1974 provided that councils were to apply the following six principles of financial management in managing their revenues, expenses, assets, liabilities, investments, and financial dealings generally:

(a) All revenue, expenses, assets, liabilities, and investments are to be managed prudently, in the interests of the district of the local authority or of its inhabitants and ratepayers, and only for lawful purposes:

(b) Adequate and effective provision for the expenditure needs of the local authority, as identified in the annual plan and the long-term financial strategy, is to be made, as the case may require, in the annual plan and the long-term financial strategy:

(c) The benefits and costs of different options are to be assessed in determining any long-term financial strategy, funding policy, investment policy, or borrowing management policy, and in making any decision with significant financial consequences (including a decision to take no action):

(d) The identified expenditure needs of the local authority are to be funded by such lawful funding mechanisms as the local authority considers on reasonable grounds to be appropriate, having regard to the provisions of sections 122D and 122E of this Act and to all other relevant considerations:

(e) Debt shall be maintained at prudent levels and in accordance with the relevant provisions of the borrowing management policy:

(f) Except as provided in section 122J of this Act, operating revenues in any financial year shall be set at a level adequate to cover all projected operating expenses.

5.14
Mr Mitchell was also asked to review the process and models the consultants used to select the preferred proponent to ensure that they complied with the Victorian state government standards. He was also asked to report on whether such models were reasonable in the New Zealand environment and to cover the effect of the treatment of risk.

5.15
Mr Mitchell prepared a report called "Kaipara District Council ‘EcoCare' project position paper and points outline" in November 2002. He noted that the paper was prepared in a "points outline format" to enable EPS and the Chief Executive to comment. He also pointed out that the terms of reference had not actually required the preparation of a report. He noted that only "tentative conclusions or observation are possible, given growing, but by no means fully developed familiarity of the process having been reached at this point". He concluded that the project had been managed in keeping "with all relevant and essential elements of the Vic State PPP process" and that the PSC benchmark had been properly constructed (although he noted that there was no competitive neutrality adjustment). He also noted that some parts of the Partnerships Victoria approach were missing – for example, a probity auditor had not been appointed.

5.16
He noted that he had reviewed the PSC modelling. However, this testing:

... fell well short of a high level of assurance on all material. In spite of these limitations good results were achieved. Based on the (reported) extensive and well proven/tried use of this model (supplied by PwC (Australia)) ‘good' results could be confidently expected when the PSC results were used to assist in the evaluation of the bids.

5.17
He noted that KDC had not carried out any due diligence on Simon Engineering at that stage. His paper records that he was told that no due diligence process had been conducted because KDC had not requested one.

5.18
EPS provided critical comments on the paper prepared by Mr Mitchell. KDC's Chief Executive prepared a file note in late November 2002 setting out his conclusions on the work done by Mr Mitchell and the assurance he took from the work. It does not appear that the paper prepared by Mr Mitchell was ever finalised or that his position paper or the Chief Executive's file note were ever provided to the PSC or to the Council. However, the Chief Executive included some information about Mr Mitchell's report in his monthly Chief Executive's report to the Council for December 2002.

5.19
In that report, he noted that:

Larry Mitchell has completed his draft report, as peer reviewer of the project and its processes. I am pleased with the outcome that generally states that the process has been well managed. However, as I asked for the review to be carried out from an independent audit basis there are some areas where additional work may be necessary. This is relatively minor. The major item is the possibility of using Council's auditor, Audit New Zealand, to carry out a compliance audit.

5.20
In the meantime, the MRRA complained to the OAG, expressing concern about whether KDC had complied with its legal obligations under section 122C of the Local Government Act 1974 and whether the funding mechanism (BOOT) was in keeping with the Council's Treasury Management Policy.

5.21
The OAG asked Audit New Zealand, when carrying out its work on KDC's annual audit, to focus on the funding mechanism the Council had selected and whether the Council had taken all relevant considerations into account in selecting it. The auditor was to report back by the end of January 2003.

5.22
However, this plan was overtaken by the passing of the Local Government Act in December 2002. The Local Government Act 2002 contained a set of principles for local authorities to follow when consulting with their communities. The OAG noted that, in light of these new requirements and the Council's stated desire to hold a public consultation process under section 83 of the Local Government Act 2002, it would no longer be enquiring into the issue. In any event, as we describe in Part 8, the Local Government Act 2002 meant that KDC had to change the way in which the project was structured and funded.

Our comments

5.23
The Council is obliged to make sure it has good information on community views before it makes big decisions. It does not have to find a consensus or do what the community says it wants.

5.24
We consider that the Council's engagement with the community in this first phase of the project was good. It made extensive efforts to understand community views and to keep the public informed. The Council disagreed with those in the community who did not think a reticulated wastewater scheme was needed. For this reason, engagement with the community about what it was doing and why was important but also challenging.

5.25
It is not surprising that KDC reduced its communication while the tender process with the market was under way. This type of commercial process always involves some constraints on communication. We consider that the community briefings and forums that were arranged at different points were good initiatives.

5.26
It is unsurprising that the MRRA and others who opposed the scheme strongly expressed concerns during this period. That is common whenever a significant milestone is approaching, such as the Council selecting and contracting with a preferred provider.

5.27
The community sounded warnings and concerns that later proved to be well founded. The fact that the Council chose not to heed them does not detract from the fact that KDC engaged quite fully with the community while the wastewater project was getting set up.