Auditor-General's overview

In February 2015, I announced that my Office would carry out an inquiry into Auckland Council's management of a project to develop a new town centre in Massey North. ¹

Several people had raised concerns with me about the establishment and management of this new town. They questioned whether the public and private costs and benefits of the project have been appropriately balanced between Auckland Council and a private developer.

The focus of my inquiry was on Auckland Council's management and governance of the project from 1 November 2010, when the newly amalgamated Auckland Council inherited the project from the now dissolved Waitakere City Council.

However, the report also details how the project was set up and how the contractual relationship developed between Waitakere City Council and the private developer New Zealand Retail Property Group Limited (NZRPG).

The development, from inception, spans 15 years to date and is factually and contractually complex. Rather than describe or comment on every aspect of the commercial arrangements entered into by the respective Councils, this report focuses on some specific aspects of the development that appear to have caused concern.

Waitakere City Council's establishment and management of the project

As far back as 1999, Waitakere City Council had a vision to develop a self-contained town at Massey North where people could live, work, and access services without travelling to other parts of Auckland. As part of that vision, Waitakere City Council developed the Northern Strategic Growth Area programme. The programme aimed to support residential and employment needs; create a regionally significant business address; create further services, jobs, and amenities in the north-west of Waitakere City; reduce the amount of travel by residents out of the area; and reduce pressure for growth in rural areas.

The first stage of the programme involved developing the Hobsonville Airbase, Hobsonville Village, and a new town centre project at Massey North. A high-quality town centre was envisaged with particular features of design, including public spaces.

Companies in the NZRPG group owned or controlled much of the land where the new town centre was to be located. As a result, Waitakere City Council entered into a Memorandum of Understanding with NZRPG in 2004 to establish a collaborative working relationship to design and develop the town centre. In 2010, the Council and NZRPG entered into a suite of contractual arrangements for the actual development of the new town centre and the sharing of the costs between them.

The Council's decision to purchase Westgate Street

While the focus of my inquiry was on Auckland Council's management and governance of this project from 2010 onwards, concerns were also raised about Waitakere City Council's decision to pay the developer $6 million for a street in the existing Westgate shopping centre. Concerns had been raised about this purchase because, usually in a new development, a developer will bear the cost of constructing roads – which then vest in the Council at no cost when land is subdivided.

Accordingly, in order to provide sufficient context, my report sets out additional background detail about the decision-making process undertaken by Waitakere City Council in relation to the purchase, and the basis on which the purchase price was agreed.

Responsibility for the costs of relocating transmission lines

Concerns were also raised with my Office about the contractual arrangements between Waitakere City Council (and, subsequently, Auckland Council), Transpower, and NZRPG to relocate transmission lines passing over the development underground. Waitakere City Council entered into an agreement with Transpower to pay the costs of the relocation.

The evidence supports the need to relocate the power lines for the development of the town to proceed.

In the agreement with Transpower, Waitakere City Council accepted the primary responsibility to pay all the cost of relocating the lines – that is, its own 35% and NZRPG's 65% share of the cost. The share of the costs to be paid by NZRPG would be recovered under a separate agreement between Waitakere City Council and NZRPG.

Waitakere City Council was clearly aware that, in accepting the primary payment risk, it needed to protect its position in case NZRPG failed to pay its share of the costs. It put in place several mechanisms to provide this protection, including an offsetting agreement. Importantly however, although Auckland Transition Agency confirmed the agreement with Transpower, it did not confirm the offsetting agreement. As a result, the agreement with NZRPG to pay its share was legally invalid. As a result, the Council was party to a binding contract to pay the full costs of relocating the power lines without having a corresponding binding contract in place to recover NZRPG's share of the costs from NZRPG.

In November 2010, Auckland Council came into existence and inherited the project from Waitakere City Council. It also inherited the issue relating to the legal invalidity of the agreement with NZRPG to pay its share of the relocation costs. Auckland Council resolved this issue by entering into a new agreement with NZRPG to share the costs.

However, in 2012, it then decided to postpone NZRPG's obligation to pay its share. Council documents indicate that this decision was made because it perceived a risk to the progression of the project. The result of this decision has been that the financial risk borne by the Council and its ratepayers will continue until such time as NZRPG's contribution has been fully paid. As at 20 September 2016, NZRPG had paid about $3 million of the $11.3 million it owed to Auckland Council.

Development contributions from the developer

As part of its contractual relationship with NZRPG, Waitakere City Council carried out several infrastructure works at its own expense. Among other things, this included work such as the construction and widening of roads, the development of intersections, the provision of water supply and wastewater services, and the design and construction of the town square and library. The intention was that the Council would subsequently recover some of the costs associated with this work through development contributions to be paid by the developer.

Development contributions are fees charged by a council for community and network infrastructure as a result of a development project. The amount of contribution was to be determined by Waitakere City Council in accordance with its Development Contributions Policy, which set out how contributions were to be calculated.

This policy made provision for the Council to subsequently agree to vary the provision of the contributions. The calculation of development contributions in this project was not straightforward, given the complexity of assessing the balance between the public and private benefits of the development. We have been unable to ascertain or calculate the value of the development contributions but expect it to be a significant amount of money.

On 28 October 2010, Waitakere City Council reached an agreement with NZRPG to vary the amount and the timing of payments of development contributions.

The decision was made just before the transition to Auckland Council, and was recorded in an exchange of letters over two working days. The decision was not confirmed by the Auckland Transition Agency.

Auckland Council subsequently entered into an agreement with NZRPG to formalise the development contributions arrangements. The agreement provides for the off-setting of some of the development contributions owed, as well as the postponement of when some development contributions are to be assessed and paid. While there are still development contributions payable by NZRPG before the end of the project, Auckland Council has taken on a greater risk at this stage in the project by the postponement of these payments. Whether the final amount of development contributions is appropriate will need to be weighed up as part of the overall balance of costs between the parties at the conclusion of the project.

Specific steps taken by Auckland Council after 1 November 2010

Once it became responsible for the project, Auckland Council immediately sought legal advice on the agreements it had inherited. It became clear that the Auckland Transition Agency had not confirmed all of the agreements, which was a prerequisite for transfer to Auckland Council. Auckland Council signed replacement agreements to ensure that they were all legally valid. In October 2011, the Regional Development and Operations Committee of Auckland Council agreed that a review into probity issues raised at the Committee be conducted and that the review be reported back to the Committee for further consideration. Auckland law firm Meredith Connell was commissioned to undertake that review.

In my view, commissioning this review was good practice given the complicated matrix of arrangements between the former Waitakere City Council and NZRPG. The review put Auckland Council in a good position to understand the obligations it had inherited and any risk that it might need to manage.

The Meredith Connell review was summarised and discussed at the public excluded part of the June 2012 Regional Development and Operations Committee meeting. The Committee agreed that the report and associated resolutions remain confidential until the reasons for confidentiality no longer exist.

Auckland Council has since improved the contractual arrangements with NZRPG, including linking payments more directly to the delivery of work and instituting a better procurement process for subcontractors working on the new town centre.

Governance

The amount of information provided to the elected members of Auckland Council on this development could have been more comprehensive. Councillors have been concerned about the project and should not need to resort to me to get answers. In my view, the risks involved with this development warrant greater involvement by Auckland Council's governing body in overseeing the project, including its costs. More information and clarity about the issues that management need to refer to the governing body would help this oversight.

Transparency could have been better

Public concerns have been raised with my Office, and directly with Auckland Council, about the lack of transparency with this development. My Office received complaints from members of the public who have been unable to access information about the project, including the Meredith Connell report. Similar concerns have been expressed to my Office by Council members.

It is important that local authorities strike the right balance between balancing commercial sensitivity, maintaining legal privilege as appropriate and being open with ratepayers and elected representatives to provide transparency about the agreements they enter into and to demonstrate that they are getting value for money. Such openness allows public discussion and debate, and is essential to supporting public sector accountability.

In my view, Auckland Council could have made more information about this development available. Auckland Council obtained the Meredith Connell advice on a confidential basis and has treated the report as legally privileged and commercially sensitive. Given the public interest and that commercial sensitivity has likely reduced with the passage of time, I encourage Auckland Council to consider what information it could now release – including all or some of the Meredith Connell report.

A final thought

As far back as 1999, Waitakere City Council had a vision for a town centre at Massey North. The arrangements that the Council entered into to achieve that vision were different from those one would normally see between a council and a private developer.

This inquiry has not been straightforward, given the project's duration, the complexity of the arrangements, and the change in Councils. My view is that it is too early to definitively determine the extent to which the Council's vision will be achieved and the ultimate cost to be borne by the ratepayers to achieve that.

However, this exercise has highlighted once again the importance not just of making good decisions but also of being able to show that good decisions have been made. This is especially so in times of change.

Acknowledgments

I thank staff of Auckland Council and the former Waitakere City Council, staff from NZRPG, and other interested parties for their assistance with this inquiry.

Lyn Provost
Controller and Auditor-General

31 January 2017

1: Massey North has been known as Westgate since 2013. We use the term Massey North throughout our report for the sake of simplicity.