Part 6: Our overall comments on how the wastewater project began

6.1
In our view, the initial work that KDC did to establish whether Mangawhai needed a reticulated wastewater scheme was carried out well. The work was thorough and careful, and included good consultation with the community. We consider that the decision to begin the project was soundly based.

6.2
Two decisions in this early phase were critical to how the project progressed:

• the preference for disposal of effluent to land rather than water; and
• the decision to use a PPP.

6.3
Although the RFP did not rule out disposal to water, it made it clear that this was not preferred by stakeholders and that the risk of gaining consent for this method of disposal sat with the private sector contractor. The preference for land-based disposal options reflected the community's views and also the restrictions in the regional planning documents. The consequence of this preference was that the disposal options were limited early in the project.

6.4
The tendering process failed to produce a tenderer with a disposal site that was acceptable to the Council. As a result, KDC had no reliable information about what a scheme with an acceptable disposal site would cost or whether such a scheme would be cheaper than the benchmark. It was risky for KDC to carry on with the tender process without resolving this issue. As we discuss later in the report, the disposal site for the scheme was not identified or secured until quite late in the project and added significant costs.

6.5
We do not consider that the decision to use a PPP was well founded. Although there was reasonably well-developed Australian guidance available by 2001 and the Beca consortium included an Australian company with specialist expertise in PPPs, we do not consider that KDC's work to assess the merits of a PPP was carried out well. The information we have gathered shows that the decision was largely driven by financial considerations and the perception that a PPP would keep the debt off KDC's balance sheet and enable KDC to get around its borrowing restrictions. In our view, KDC should have done more work to consider the full range of options available to it.

6.6
KDC followed the right steps to go to the market for a private sector partner, but the quality of the substantive work at each stage was not adequate. KDC's approach to decision-making was also too informal, so it is not clear who was responsible for making important decisions or why they were made.

6.7
It is also clear that, at this stage, KDC had not given any careful thought to how it might raise revenue to pay for the project. In particular, we saw no consideration of the legal tools available for KDC to raise revenue from ratepayers.

6.8
Our overall view is that KDC had good reasons for believing that it had to do something about disposing of sewage in Mangawhai and that it was trying to do the right thing. However, we consider that it did not set up adequate governance structures for the project, because it did not appreciate what work it needed to do in addition to the work that its project managers carried out. Nor was any group or person within KDC responsible for the project and maintaining oversight of the work of the project managers. As a result, KDC was out of its depth with the financial, legal, and commercial complexity of a project of this type and size. It was overly reliant on its advisers and was not able to effectively assess the information or advice it received.

6.9
We are particularly concerned that KDC appears to have had a weak appreciation of its accountability and legal obligations. The essence of accountability is the ability to explain what is being done with public money, the decisions that are being made, and the reasons for them. Good records provide the foundation for that accountability. We found that KDC's records were very poor and, in some cases, non-existent. We spent a great deal of time working with KDC staff and KDC's contractors trying to locate or recreate important pieces of information.

6.10
That approach to record-keeping is not acceptable. Even when working with contractors, all public entities have an obligation to maintain full and accurate records consistent with normal business practice. Local authorities also have to be able to produce that information if it is requested under the Local Government Official Information and Meetings Act 1987 or through any other accountability process. Ultimately, responsibility for these types of operational and administrative systems rest with a chief executive.