Part 16: Events during construction

Inquiry into the Mangawhai community wastewater scheme.

Construction of the wastewater scheme officially began with a ground-breaking ceremony and open day on 14 January 2008. The construction phase ended with the official opening of the system on 16 January 2010.

There were very few documents in KDC's files about the construction of the scheme. The construction of the scheme was under the control of the Project Director, in EPS. We did not have access to EPS' files in Australia, so were unable to assess how that role was carried out during the construction period. Our findings about how well KDC managed its responsibilities are based on the information in KDC's files, the files that we were able to review at Beca, and the information provided to us by EarthTech.

In this Part, we cover:

  • how well KDC controlled what was being built;
  • whether EarthTech built what it was contracted to build;
  • modifications that were made during construction;
  • how the connections to residences were managed;
  • community liaison; and
  • our overall comments.

In summary, we conclude that:

  • KDC had very weak control over the construction and what was built. It appears that what has been built is not the same as what is in the Project Plan in the contract.
  • Modifications to the scope of the works were agreed to by EarthTech and the Project Director, but it is not clear that the Council knew about, or agreed to, these modifications.
  • KDC tried hard to communicate with residents about the scheme, but the communication was not particularly effective.

Control over what was being built

As we explained in Part 15, the Project Deed required EarthTech to produce a design report for the Project Director at EPS to endorse. If EarthTech wanted to change the design or the Project Plan, it had to provide technical information supporting the change and seek the Project Director's consent. Some changes were made to the Project Plan. We found no documents in KDC's files about these changes, so we could not establish what changes were made, the process used to make the changes, or what information EarthTech provided to support those changes.

EPS told us that the Project Director endorsed any changes to the design proposed by EarthTech. It told us that the design changes were documented as required and that KDC was advised of any changes in monthly reports.

Depending on its nature, any design changes might have also required a change to the resource consents. We were unable to determine whether the Project Director or KDC considered these issues.

In the early stages of construction, both the Project Director and ABN Amro had concerns about EarthTech's project management. In an email to EarthTech in September 2008, EPS noted that EarthTech had been "… requested to consider making an offer to KDC to offset costs expended to date associated with poor site Project Management/non control of [wastewater treatment plant] design works".

EPS provided this email to the Council's Chief Executive with the following comment:

In summary, we went through the present [wastewater treatment plant] design and agreed on substantive reductions without impacting process performance. We also agreed to reduce some areas which may prove to be required after commissioning, but which we all think are more likely not to be required. If we delete them and "park" some money instead of sharing savings initially, we can add them later if they are required, or alternatively share the savings after we are sure. The total savings are hard to estimate until we see the agreed revisions and [name] gets pricing from suppliers etc. but it's probably in the region of at least $500K. The design undertaken by [name] with [name] oversight had many "over the top" items. Beautiful Rolls Royce stuff but way too excessive for what needs to be a simple, robust plant. (eg: mono rail systems for pump removal that may only be required once in 10 years??. Pumps in dry well arrangements instead of submersible within tanks, standardisation of tank sizing etc. You will see the general detail in the email below).

I have also told [EarthTech] that you expect a price reduction to offset the wasted design and Project Management costs caused by poor control of [name] and [name]….

In practice, the issue is not that significant as the design undertaken has ensured that the process and pipework design etc is robust and what we had in front of us provided an excellent basis to assess what was an excellent design for a high cost solution, but one we could use to make pragmatic savings.

Our comments

In our view, this email shows that there were several problems with the way the project was run. First, there was no financial pressure on EarthTech to create a cost-effective design. Once NorthPower withdrew, there was no commercial tension in the tendering process and, therefore, little incentive for EarthTech to put in a cost-effective design. The benchmark was never updated, so KDC could not tell whether EarthTech's bid provided value for money.

This email also shows the risk of using a contract that includes a guaranteed maximum price and a provision for sharing savings when there is no independent assessment of the costs that make up that guaranteed maximum price. If the costs that make up the guaranteed maximum price are not independently assessed, a tenderer can set the guaranteed maximum price as high as it likes, knowing that it will make savings in the process and that way increase the amount it takes away in shared savings. It also means that there is no way of assessing whether the guaranteed maximum price is reasonable for the works to be carried out.

Another issue that this email identifies is that the original tenders were for a BOOT scheme with a 25-year operation. A 25-year concession period was likely to encourage tenderers towards including a well-built wastewater treatment plant with low operational and maintenance risk. When the project was changed to a DBFO arrangement with a 10-year concession period (with a five-year right of renewal), it was likely that proposals from tenderers would include a more cost-effective wastewater treatment plant. However, in this case, there was no re-tendering, and NorthPower withdrew its bid. Therefore, there was no competitive pressure on EarthTech to revise its wastewater treatment plant.

The lack of a robust tendering process meant that KDC lost an important mechanism for managing this risk. It is unclear what stage the construction of the wastewater treatment plant was at and whether EPS had endorsed the designs by September 2008. It is not clear why the issues with the design had not been identified when the Project Deed was signed or when the design reports were provided to the Project Director for endorsement before construction started. The fact that EPS could only ask EarthTech to consider making an offer to compensate for the additional costs was a direct result of failing to adequately review the design reports before construction.

Did EarthTech build what it was contracted to build?

The Project Deed provides that EarthTech was required to develop and operate the wastewater scheme in accordance with the Project Plan included in Schedule A of the Project Deed. There was no information in KDC's files about the final design of the wastewater treatment plant, transfer pipeline, or dam. Although Schedule A of the Project Plan in the 2007 Project Deed set out what EarthTech was contracted to build, the Project Plan could be changed or modified, provided the Council consented. We know that there were some changes that meant that what has been built is not the same as in the Project Plan.

We identified several aspects of the wastewater treatment plant that were not the same as in the Project Plan. For example, the 2007 Project Deed provided for six tertiary filters to further clean the effluent, but only four were installed. The Project Deed also specified a "3mm aperture step or inline screen" to provide initial screening of the wastewater. What has been built has a 6mm screen. The purpose of the screen is to remove fibrous stringy material from the wastewater, which can foul machines and damage bearings. The larger the screen size, the more fibrous stringy material can get into the treatment plant, leading to higher maintenance costs.

The Project Deed required the construction to be carried out in accordance with the relevant New Zealand standards, among other things. However, it appears that at least one aspect of the scheme has not been constructed in accordance with the New Zealand standards. New Zealand Standard 4404:2010 Land Development and Subdivision Infrastructure outlines the standard design for gravity sewers. It has specific detail on where manholes and inspection chambers are to be located along a gravity sewer. The purpose of these provisions is to enable maintenance to be carried out easily. However, Schedule A of the Project Deed specifically leaves the choice of using manholes or inspection chambers up to EarthTech. There are no records to show that the manholes or inspection chambers used by EarthTech comply with the New Zealand standard.

EPS told us that the New Zealand standards were guidelines only. They also told us that the modern "Modified Conventional Sewer Reticulation Design" used by EarthTech provided significant cost savings to KDC and is a very common practice in Australia and New Zealand.

According to the 2007 Project Deed, two reactor tanks of about 960m3 in volume were to be built. We were unable to determine whether the tanks were built with the volume specified in the Deed.

KDC has not been able to provide us with information about why the wastewater treatment plant was not constructed to meet the contractual requirements, nor what process the Project Director used to agree changes to the plant. We could not establish whether the Project Director considered whether any of these changes affected the resource consents held for the scheme. Importantly, we were unable to determine whether EarthTech passed on to KDC the savings it made by constructing less than was required under the initial contract documents.

We looked at the 2005 Project Deed and the 2007 Project Deed to assess what was required to be built. Our engineers also visited the site see how the wastewater scheme operated. They identified that the 2007 Project Deed significantly reduced parts of the Project Plan included in the 2005 Project Deed. For example, the 2005 Project Deed provided for three 1075m3 reactor tanks to be built, giving a total volume of 3225m3. The 2007 Project Deed reduced the total capacity to 1920m3. This reduced the capacity by 40% from the 2005 Project Deed. We do not know whether there was a corresponding reduction in price.

It appears that the design for the wastewater treatment plant included in the 2005 Project Deed was oversized. Although we understand that Beca and EarthTech staff reviewed the design in 2005, there was no information in KDC's files about that review work and whether the design was appropriate. We were unable to determine why the Council signed off the 2005 Project Deed without assuring itself that the wastewater treatment plant design was appropriate. It does not appear from the Council's minutes that the Council was told, before it agreed to the 2007 Project Deed, that elements of the design were being significantly reduced or the reasons for that. We were unable to determine whether the savings resulting from the reduction were passed on to KDC.

Our comments

The contract specifically required compliance with New Zealand standards. This is a matter that should have been considered during the endorsement of the final design report and when the Project Deed project plan was finalised. However, the effect of the changes agreed to by the Project Director was that the sewers did not comply with New Zealand standards, as required by the contract. We are unclear what authority the Project Director had to make changes that had the effect of meaning that the works did not comply with the contract.

In our view, these issues all identify that the Council had little real control over what was to be built and how it was to be built. The Council failed to assure itself before signing the Project Deeds that the design was appropriate for Mangawhai's needs.

Modifications made during construction

KDC oversight of the modifications process

The Project Deed signed in December 2007 set out a process for modifications, or changes to the agreed scope of the works. Both EarthTech and KDC could request changes to the scope of works. Both KDC and EarthTech requested modifications to the scope of works.

The Project Deed provided that, if KDC requested a modification, EarthTech had to supply the Project Director with information about the time and cost consequences of the modification. This included information about how the additional work would affect dates, such as those set for commercial acceptance. EarthTech also had to provide information about the effects of the proposed modification on the wastewater scheme (such as on durability and operation). KDC could then accept or refuse the modification.

We asked for information about the modifications from Beca and EPS. They advised us that, although they could provide us with some material, finding the remaining material would require significant work. From the information we were provided with, we were unable to determine which modification requests KDC made were actually carried out. In some cases, requests for modifications were made, but the Project Director decided not to proceed with them. We also did not have the information about the proposed modifications that EarthTech should have provided to the Project Director. Therefore, we were unable to determine what information the Project Director relied on to accept the modifications or whether the process used complied with that set out in the Project Deed.

EarthTech told us that changes to scope were dealt with using the modifications process under the Project Deed and were properly documented. It provided us with copies of documents for one of the modifications.

When we reviewed KDC's files, we found only one instance where modifications were referred to the Council for decision. This was in January 2010, when the Council approved EarthTech carrying out work to repair sewerage infrastructure that subdivision developers had installed in the past. One of the Chief Executive's monthly reports to the Council records that the addition of further areas to be reticulated was discussed with the Council at a workshop. His report noted that recommendations about further areas to be reticulated would be provided to the Council progressively. It does not appear that there was regular reporting on the modifications to the Council, and the information about modifications that was provided in the Chief Executive's reports was limited.

KDC's files do not appear to have a full record of all the modification requests from KDC, EarthTech's notices, or the Project Director's acceptances. We were unable to determine whether the Chief Executive was advised of the proposed modifications, nor whether he agreed to them being carried out.

EPS told us that the Project Director provided all documentation as required under the contract, including modification requests. EPS also told us that information about all modifications was provided to the Council and explained in monthly reports and other documents. EPS also told us that KDC approved all modifications and that, in most cases, KDC requested the modifications.

It is unclear from the Project Deed whether any quality assurance process would apply to works carried out as modifications after commercial acceptance. It also appears that the Project Director's powers to inspect and audit work did not extend to works carried out as modifications. KDC does not appear to have discussed these issues.

How much was spent on modifications?

A paper prepared by Beca in November 2007 (which we discussed in Part 12) stated that KDC had loan financing from ABN Amro of up to $53 million. Of that, $49.5 million was committed to pay other costs of the scheme and $3.5 million was available for modifications. If cost savings could be made through the guaranteed maximum price process, then other funds could potentially be available. At that point, KDC also had $5.9 million in revenue from the SWSS subsidy, which it could use to fund the scheme.

The paper is not entirely clear, but it appears that the amended (2007) Project Deed did not include some works that were required for the scheme. These works were to be carried out as modifications. These included the work to connect houses to the scheme and additional works to connect some new subdivisions. The paper estimated that the cost of connecting the new subdivisions would be about $1.0 million to $1.5 million. There was no estimate of the cost of the work to connect houses.

As we set out in Part 12, modifications agreed by KDC could affect whether the dates set for commercial acceptance were met, which would in turn affect KDC's financing costs. Nothing in the papers that went to the Council in November 2007 discussed this issue, nor was it recorded as being discussed by the Council in the minutes.

It is also unclear why the Council signed off the amended project documents when it was clear that the scope of the works and, therefore, the possible costs were unknown. In November 2007, the total project costs were estimated to be $53 million, of which $3.5 million was available for modifications. By January 2011, the total project costs were estimated to be $63.3 million. Of this, $8.6 million had been spent on modifications, an increase of $5.1 million. The project management and financing costs had also increased by $5.2 million.

It appears that, by March 2008, the $3.5 million budget for additional work had already been exceeded. In a paper to the Council on rates and charges in March 2008, the Chief Executive set out that the project costs were $57.7 million, including $5.5 million for future modifications. The minutes of the Council meeting on 26 March 2008 do not record that there was any discussion of the increased capital costs or the amount to be spent on modifications.

KDC's former Chief Executive told us that the:

Council understood at the signing of the Project Deed there were significant additional connections to be made and that growth was occurring at a rapid rate. The Council required that all properties be connected. This was to be funded by the funding arrangements in place. The Council was measuring costs by looking at the fees to be charged to ratepayers to operate the system and fees to be paid by developers.

A February 2011 presentation to the Council set out that the modifications totalled an additional $8.6 million. The modifications listed were as set out in Figure 10.

Figure 10
Modifications to Project Deed

Storage dam and irrigation system $0.8 million
House drain connections $5.4 million
Additional areas $1.1 million
Resource consents $0.5 million
Repairs to sewers vested in the Council by developers $0.8 million

Source: "EcoCare Project Review", PowerPoint presentation to the Council from Project Management Team on 9 February 2011.

What were the modifications?

Because of the lack of records in KDC's files, we were unable to determine what the scope of the works covered by the modifications was. We asked KDC for information about the modifications and the costs of each. However, it was unable to provide this information. We were also unable to determine what work the project managers did to determine that the work that was completed after commercial acceptance was carried out to the appropriate standard.

From the information we have, we found that there were several problems with the modifications agreed to. We have summarised these below.

The modification changing the location for the wastewater treatment plant was because of agreements made to settle the appeals to the Environment Court on the resource consents for the wastewater scheme. This change was known before the amended Project Deed was signed in December 2007. However, it was not included in the Deed. The modification papers showed that the Project Director requested this modification from EarthTech in December 2007, but it was not finally agreed until May 2009. By this time, the work had been completed (in keeping with the modified requirements). The purpose of the modifications process in the contract is to ensure that the cost, design, and construction implications for the rest of the scheme are understood before the decision to change is made. That purpose was defeated in this case.

One of the modifications the Project Director requested related to Baylys Beach (an area on the west coast of the district). The Project Director asked EarthTech to provide a cost for assessing the site for connecting Baylys Beach to the Dargaville wastewater treatment plant and for preparing concept designs, construction designs, and construction costs. It is unclear how this modification could be authorised under the Project Deed.

EarthTech told us that it created a preliminary design for a wastewater scheme for Baylys Beach and provided this to EPS and KDC. KDC told us that work carried out by the project managers on the investigations of Baylys Beach and other wastewater schemes were included in the Mangawhai wastewater project costs. It identified invoices from Beca for this work that were about $280,000. It also told us that the value of these works was removed from the valuation of the Mangawhai scheme because of the scheme asset valuations completed in 2012.

Our comments

It is clear that, before KDC signed the amended project documents in December 2007, it was aware that additional work to that set out in those documents would need to be carried out. In our view, there were risks to KDC signing the amended project documents and leaving these issues to be managed through the modifications process. It does not appear that KDC ever assessed what these risks were or how they could be mitigated before it signed the amended project documents.

From the information we have seen, KDC did not have a clear process for managing the modifications, including determining when Council approval was required. The Council files did not include any evidence of regular reporting to the Council on what modifications had been agreed and the costs of those modifications, although EPS told us that there was regular reporting. If the only reporting was that shown in the files, the Council would have had limited information to enable it to understand the costs of the modifications and, in turn, how that might affect its financing.

Because KDC had limited funds available for modifications, it needed to maintain strong oversight of the modifications process. It is not clear that it did this. What is clear it that costs increased and works not authorised by the Project Deed and unrelated to the wastewater project were carried out.

How the connections to residences were managed

As we set out earlier in the report, in 2006, the Council agreed to connect residents to the scheme as part of the scope of works to be carried out. In October 2006, the Council was told that the work to connect houses was likely to cost $2.35 million. This work was not included in the 2007 Project Deed. Rather, it was done as a modification. In some cases, works on private land were also required to connect a group of residents to the wastewater scheme. For example, a single drain running through one resident's property might connect five other properties to the scheme.

There are requirements in the Local Government Act 2002 and the Local Government Act 1974 that control how a council can carry out works on private land. These Acts also set out what landowners' obligations are for a wastewater scheme, including the parts that are on their land.

Before construction started, KDC provided residents with an information booklet that included information about connections. Residents were later provided with information about when properties would be connected. We understand that discussions were held with residents on-site before connection works started, where this was possible.

Use of the Sanitary Works Subsidy Scheme subsidy

The Council decided to use part of the SWSS subsidy to pay for the cost of connecting ratepayers who had sections created before 23 March 2002. The subsidy was also to be used to reduce the uniform targeted rate that those ratepayers would pay. The Council intended that other ratepayers would have to pay for the costs of connecting to the scheme. It appears that EarthTech carried out connections for 1172 ratepayers who were eligible for the subsidy. The remaining 778 had to pay for the connection work.

A report to the Council in 2012 stated that the cost of connections was $7.948 million. This did not include the cost of installing the grinder pumps. This meant that 1172 properties were connected at an average cost of $6,781 for each property. The $7.9 million was more than the total amount provided by the SWSS subsidy. However, the subsidy was also to be used to reduce the targeted rate for those eligible. It is not possible for the SWSS subsidy to have covered all of these costs. Some will have had to be funded by other revenue, such as rates.

The connections work was carried out as a modification to the Project Deed. We understand that the work was done on a cost reimbursement basis, which included EarthTech's fee. We were unable to determine what information was provided to the Project Director about the likely costs of the connections. There is no record of such information being provided to the Council.

Who got connected

KDC was able to legally require people within the drainage district to connect their properties to the wastewater scheme. However, not all of the properties in the drainage district were connected. It appears that decisions were made not to connect some properties because they were very costly to connect. A draft policy paper EPS prepared in 2006 stated that, in deciding to include properties in the scheme, the following matters may be considered:

Some allotments in Mangawhai are in locations such that connecting them to the scheme would cost significantly more than the average cost per property. Some examples of these properties can be found on the harbour front where steep, heavily vegetated slopes would need to be negotiated by a pressure sewer. If the exclusion of such allotments is unlikely to have any practical impact on the overall objective of the scheme (ie improving ground water and harbour water quality) it may be considered economically beneficial and environmentally acceptable to exclude them from the scheme….

Large allotments which have adequate area for on-site disposal may be excluded from the scheme as there is no perceived environmental benefit from connecting them to the EcoCare scheme.

We were unable to establish whether this policy was finalised or what basis was used to decide who would be connected. It is not clear that the Council discussed this issue. The policy on who would be connected within the drainage district was unclear and created confusion for residents.

In particular, when we met with residents, many people expressed concern that the local councillor's house had not been connected even though her property was located quite close to Mangawhai Village. We established that she and her husband had wanted to connect to the scheme as part of their plans to upgrade the property. However, it was eventually established that their property, like the school over the road, would fall outside the drainage district, although areas close to them were connected. She told us that the reasons KDC gave them for declining to connect the property included that the cost to KDC of making the connection was greater than the connection costs they would pay to KDC and that the property was large enough to support its own wastewater treatment system without risk of contamination to the Harbour.

This particular councillor had no involvement in the decisions about who would be connected and was unhappy to have been excluded from the scheme. However, she has been the subject of considerable personal criticism because people could not understand the basis on which decisions were being made. In our view, KDC could have communicated its criteria for connection more effectively and explained why various properties did not meet the criteria.

It does not appear that KDC has taken any steps to ensure that those properties within the drainage district but not connected – in particular, properties close to the estuary – have correctly functioning septic tank systems to minimise effects on the environment.

Some properties that could be connected were not connected because their owners needed to carry out works to upgrade the drains on their properties before they could be connected.

Shared grinder pumps

Residents were advised in November 2007 that each property that was to be serviced using the low-pressure system would have a grinder pump that then connected to KDC's sewer lines. They would pay for the power costs of the grinder pump. They would also be responsible for additional maintenance costs arising from misuse of the system and for replacing the grinder pumps in the future.

By 2008, that position had changed. Multiple properties were to be serviced by a single grinder pump to save costs. A paper EPS prepared noted that shared grinder pumps were not common in New Zealand or Australia but would save KDC money. The paper also set out that KDC would pay the power costs for the shared grinder pumps.

It is unclear why this change occurred. We could find no record of the Council discussing this. Sharing grinder pumps can create problems for residents, such as liability for maintenance and access for repair and maintenance. Eventual replacement can also be problematic, particularly where some residents sharing the grinder pumps have different occupancies in their houses – for example, permanent residents compared to those who own holiday houses that might be occupied only intermittently. We were unable to determine why KDC decided to pay for the power costs for some grinder pumps and not others. Again, we saw no evidence that the Council discussed this issue.

It appears that the way that the connections work on private land was done has the legal effect that KDC does not own the grinder pumps. They are owned by the ratepayers, who are then responsible for operating and maintaining them. We understand that, at present, EarthTech repairs the grinder pumps, although KDC does not regard the grinder pumps as part of the wastewater asset that it owns.

There are clear benefits to KDC owning the grinder pumps, maintaining them, and replacing them. These benefits include ensuring that replacement pumps maintain the integrity of the wastewater scheme and that maintenance work is carried out to a uniform standard. In our view, KDC needs to reconsider the issue of who owns the grinder pumps, who pays for the power for them, and who is responsible for their maintenance and replacement. KDC told us that it is currently reviewing its policy on the ownership and maintenance of both existing grinder pumps and any that may be required for future extensions.

Common drains and public drains on private property

We understand that the reticulation system also includes drains that run across private land and service several properties. If such drains (called common drains) are not declared to be public drains, they remain private drains. All of the ratepayers whose properties are serviced by that drain are responsible for maintaining and repairing those common drains. As a paper drafted by EPS in 2006 sets out:

With any common drainage system there is a potential for disagreements to occur between interconnected owners. The issues are generally associated with damage or asset failures and the resultant responsibilities and costs.

It is usually regarded as preferable to declare that drains connecting more than one property are public drains. Easements should also be put in place to give KDC the right to go on to the property and maintain the drains as required. KDC's former Chief Executive told us that, historically, KDC required private drains, including those used jointly, to be maintained by those using them to reduce the costs to ratepayers.

The mechanism used to carry out the work on private land (section 459 of the Local Government Act 1974) did not provide for any ongoing right for KDC to access these common drains. However, it is possible for a council to lodge a certificate on the title of properties setting out the rights and responsibilities of each party for a common drain. We found no evidence that KDC lodged such certificates on the titles of affected properties, nor that it communicated the rights and responsibilities of the landowners to them when the common drains were installed.

In some cases, EarthTech has installed public sewers across private property. KDC owns these public sewers and is required to maintain them. We understand that it is best practice to locate sewers within the legal road, because it makes long-term maintenance and eventual renewal of the sewer easier for the council. For example, the council does not have to negotiate access, and reinstatement of the site is likely to be less costly. It also means that landowners are not restricted in how they can use their property – for example, they could be restricted from building over a public sewer on their property. Although these decisions might have meant that the reticulation network was cheaper, ultimately, it is likely to have increased future costs for both residents and KDC.

EPS told us that it is common practice in Australia and New Zealand to locate sewers on "brownfields" sites in both private and public land because this "provides the cheapest ‘whole of life' cost". EPS also told us that KDC was aware of this and obtained legal advice that this was appropriate.

Although there was a copy of legal advice on KDC's files about access to private property to install sewer lines, there was nothing in that advice about whether it was appropriate for public sewer lines to be placed on private land.

EPS disagreed with our view that the location of public sewer lines on private property was likely to have increased costs for both residents and KDC. It told us that "Modern pipeline in situ maintenance and repair techniques mean that the likelihood of having to enter private property to undertake maintenance (should any be required) is very low."

We did not see any information in KDC's files to indicate that the Council discussed the location of public sewer lines on private property or the potential costs or benefits of such an approach.

Our comments

In our view, there were significant problems with the process for deciding that KDC would carry out the work to connect houses to the system and the way in which that work was done.

The decision to reverse the earlier decisions and take responsibility for this work was made without a full understanding of the cost and difficulty that would be involved. The full cost of the work ended up being $7.9 million rather than the maximum $2.5 million estimated when the decision was made in 2006. KDC received $6.63 million (including GST) through the SWSS subsidy. These funds were meant to cover the costs of the house connections and to reduce the uniform targeted rate for those qualifying for the subsidy.

In terms of difficulty, the decision meant that KDC's contractors would dig and lay pipes on people's sections. They would need to interact with property owners about the detail of exactly what work was to be done and how people's gardens and paved areas would be reinstated afterwards. If the work was not done well, there was an obvious risk that property owners would become upset. Taking on this work created significant new risks that were not well managed.

In our view, the information that KDC provided about who would be connected and who would not created confusion and significant ill will in the community. This was compounded by people paying different amounts and having different work done for them depending on when their property had been established, whether they were part of a new subdivision, and so on. When we met with residents in Mangawhai, the overriding message was that people did not understand why different properties were treated differently. Although we have confirmed that there were reasons for those differences, we agree that the information was very confusing.

We are also concerned at the number of decisions made during the connections process that involved short-term savings on construction costs but created longer-term problems for KDC as the eventual owner of the scheme. Obvious examples are the decision to install grinder pumps shared between sections rather than one for each property and the use of common drains. KDC has taken none of the usual legal steps, such as lodging easements on titles, to ensure appropriate access to maintain the infrastructure.

All of these concerns again lead us to conclude that KDC was not in proper control of the project. Decisions were based on poor information and made without a full understanding of the costs and consequences. It is not clear how many of these decisions were made by, or communicated to, the Council.

Community liaison

The ground-breaking ceremony for the wastewater scheme took place on 14 January 2008, and all residents were invited. An open forum was held after the ceremony. Drawings of sewer pipeline routes and an initial construction programme were available for viewing. EarthTech staff members were also present to answer queries. The invitation advised that construction was expected to take two years and that there would be disruption to roads and public and private property during this period.

In the six months before the ground-breaking ceremony, KDC distributed updates on the wastewater scheme monthly and sometimes fortnightly. These provided information about what residents should expect, who to contact with queries, and what residents needed to do if they planned any building works.

In October 2007, residents were advised that they would shortly receive an information booklet providing details of how the scheme was to be constructed and how it would affect them. The booklets were to be mailed to all residents. Additional copies would be available from the EcoCare Project Office and KDC offices. The booklet was distributed in November 2007.

Residents were advised that the EcoCare Project Office was to be established in Mangawhai Village in early November. The Community Liaison Officer would share this office with EarthTech staff to provide a "one stop shop" for queries and concerns. Residents were invited to join an email database to receive regular updates sent out by the Community Liaison Officer.

In December 2007, ratepayers were sent a Notice of Intention to construct works on private land. Recipients were advised where to view a description of the proposed works and reminded that the project information booklet outlined their rights and obligations if they wished to object.

From the ground-breaking ceremony in January 2008 until November 2009, updates on the wastewater scheme were distributed fortnightly. These regularly included contact details for the Community Liaison Group, the Community Liaison Officer, and the Project Office; construction progress reports; answers to common queries; reinstatement processes; explanations of the proposed rates and charges; and information about grinder pumps.

In addition, we are aware that the Community Liaison Officer dealt with many email queries and concerns during the construction period. We received many positive comments about the value of her work.

In November 2009, when the construction team withdrew and the Community Liaison Officer position was disestablished, the community was advised that KDC's Customer Services Team would handle any queries about the project.

An official open day took place on 16 January 2010.

Communication about connections and laying of pipelines

As part of the 2006 Statement of Proposal, KDC proposed to connect each property within the drainage district to the scheme. This was a change from the earlier 2003 Statement of Proposal, which said that connections were to be the responsibility of each homeowner.

The Council decided to use the SWSS subsidy to meet the cost of connections for properties that existed before 23 March 2002.

In November 2007, the project information booklet was distributed. It provided information about who would be connected. It also clarified that some properties within the drainage district would not be connected because sparse development meant that the properties would have a minimal effect on the Harbour or because distance or access difficulties meant that the properties would be too expensive to connect.

The booklet also provided answers to several frequently asked questions about the connection process, the type of drain to be used, whether gravity sewers or grinder pumps were to be installed, and matters of reinstatement.

EarthTech held "street corner meetings" shortly before it began construction work in each area, and local residents were invited to attend.

In our discussions with residents, many told us that they felt that the quality of communication about connections was very poor. Many reported that they had not been advised when they were going to be connected and received no confirmation once connected. Some commented that street corner meetings simply did not take place or, if they did, contractors took no notice of agreements reached about the location of pipes.

One of the subcontractors that carried out the main reticulation works (but not the actual house connections work) told us that, in its view, the consultation with homeowners and residents before construction began was inadequate. It meant that the subcontractor had to carry out more direct liaison with homeowners and residents than it had expected to. Under its contract, it was originally required to contact property owners by a notice only. However, it ended up having to notify and negotiate the location of pipes with the property owners. It thought that KDC or EarthTech should have carried out this negotiation and notification of works. It created additional cost and difficulty for subcontractors.

Communication about property reinstatement

The project information booklet distributed in November 2007 explained that properties would be restored to their original condition after construction work was completed. The booklet confirmed that photographs of the property would be taken before work began to ensure that the property was reinstated to its original condition. These photographs were to be kept on each property file in the Project Office. Homeowners would be asked to sign off the restoration work once it was completed to their satisfaction. If they were not happy with the reinstatement works, they were able to lodge a complaint with the wastewater project team, who would be responsible for assessing each case and applying appropriate remedial action.

During the construction work, residents were frequently provided with information about the reinstatement process through updates on the wastewater scheme provided by KDC. These updates also included information about where construction would take place next.

A question and answer document posted on KDC's website in March or April 2008 included information about reinstatement.

One of the main subcontractors that carried out most of the reticulation work (but not the house connections work) told us that EarthTech would not approve payments to it until the property owners had signed off the reinstatement work. The subcontractor resolved most of the reinstatement issues. However, a small number were left to EarthTech and KDC to finalise. The subcontractor told us that this was only done after a lengthy period during which it had to put considerable effort into resolving the issues.

The subcontractor also told us that, in one case, it sought to avoid a potentially difficult reinstatement issue by proposing to realign a pipeline, rather than place it across a driveway. EarthTech disagreed and instructed the subcontractor to leave the pipeline in its proposed alignment. The reinstatement proved very difficult, and the landowner was unhappy with the reinstatement work on the driveway. As a result, EarthTech required the subcontractor to replace the whole driveway.

Our comments

We received mixed views on the quality of communications with the community during the construction period. KDC was trying to communicate with the community, but in some cases this communication was not effective.

Many residents commented that communication was good, and most reported that, once connected, they experienced no issues and believed that the scheme was working as it should.

It would appear that, although communication before connection was extensive, EarthTech's actual communication during construction was inconsistent and, at times, either inadequate or non-existent.

Construction issues raised by residents

When we met with members of the community, they raised with us several concerns about how the construction was carried out. We selected 10 of those concerns and asked one of our engineers to look into those matters further. He sought more information from KDC about the particular issues and visited the sites where the issues occurred.

His answers to the issues we raised with him are set out in Figure 11.

Figure 11
Questions and answers on connections to the wastewater scheme

Questions Answers
1. Property A is not connected. This is because it is further than 60 metres from the reticulation and therefore not required to be connected.
2. Property B appears to have 4+ dwellings but only one is connected with a grinder pump. All these buildings are on one title. There is one connection, and each of the houses is connected through that one connection.
3. Property C has a grinder pump, but none of the adjacent dwellings around the end of the cul de sac have a grinder pump. They have gravity connections with no grinder pumps. There is insufficient head for this property to allow a gravity connection to function.
4. Properties D, E, F, and G appear to have no service connections. This was a small subdivision served by a Reflections plant. They have subsequently installed gravity connections to the system.
5. Property H has a connection that appears to be located causing unnecessary duplication of on-site reticulation. Is there a reason for this? The connection was installed based on the septic tank location. The septic tank was bypassed requiring the line to be located on the other side of property.
6. Property I appears to have been connected, but the owner indicates that it is not connected. The property has defective drains. The owner needs to apply for a building consent to connect.
7. There is a pipeline installed across the front of Property J that has a connection to that property but has no connections beyond that. Is this a section of pipeline that is redundant? Yes, the pipeline was installed assuming this property would connect further along its frontage. Its connection is further down the street, so this last section of sewer and manhole are redundant until another connection is made.
8. It appears that Properties K, L, M, and N are not connected. Why is this? These properties could not gravity to the main in their street. These properties were not included in the original scope of the wastewater scheme. It was intended that these properties connect to another system over the other side of the hill. Property L is now connected with a grinder pump. Property M could also connect if needed.
9. Street O appears to have a service connection that is not connected Council records indicate "defective drains do not connect". Owner needs to remedy then apply for building consent to connect.
10. It appears that Properties P to Y are not connected to the wastewater scheme. Is there any reason for this when properties over the road are all connected? These properties were not in the original scope of works for the wastewater scheme.

Our comments

When we met with residents in Mangawhai, people showed us photos and other information to illustrate the damage done to their properties or raised questions with us about what seemed to be poor quality work or arbitrary decisions.

Our work to check on the various issues raised shows that there were usually good reasons for the decisions. Communication was the main problem. In some cases, it was true that the reinstatement process was protracted and not particularly satisfactory.

Our overall comments

In our view, the events described in this Part show that the Council received little reporting about how the construction was carried out. There was a surprising lack of information about the construction period in KDC's files. There were also many issues that we were simply unable to come to conclusions on. Often, we could not tell what the decisions were, who made the decisions, or what the basis for the decisions was.

The Council should have ensured that it received regular, more detailed reporting from its Chief Executive and project managers during the construction period. Some decisions cost KDC significant amounts of money, but these decisions do not appear to have been referred to the Council to discuss or decide on. Some decisions will have future cost consequences for KDC, but yet again the Council was not informed about them.

The Project Deed provided KDC with some tools that it could use to control what was built and how it was built. As we set out above, it is not clear that it used the tools it had. It appears that EarthTech did not build what was specified in the Project Plan in the Project Deed. The Project Deed required the scheme to be developed and operated in accordance with the Project Plan. Changes could be made to the Project Plan with the consent of the Council. However, we cannot establish the process for making those modifications and whether they were formally or informally authorised. KDC had little, if any, control over the modifications and their cost consequences.

In our view, the connections process was also badly managed. The Council's decision to take on responsibility for connecting houses to the scheme was based on inadequate information about cost, the reasons for decisions were opaque, and the risks of miscommunication with property owners were poorly managed. Too many people were left confused and angry by this work. Attempts were made to communicate with people and to reinstate properties after the work had finished, but these efforts were not always effective. We are also concerned that the proper legal arrangements were not put in place to enable long-term maintenance of the infrastructure. In our view, short-term cost savings took precedence over long-term cost-effectiveness.

All of these points give further weight to our overall view that the Council was not in control of the project. The lack of any effective high-level management or governance of the project was becoming apparent.

page top