Part 8: What Auckland Council did after 1 November 2010

Inquiry into aspects of Auckland Council’s Westgate/Massey North town centre project.

8.1
In this Part, we look at what Auckland Council did after 1 November, once it took overall responsibility for the project.

8.2
We describe and comment on:

What was Auckland Council's assessment of the situation it inherited from Waitakere City Council?

8.3
From 1 November 2010, Waitakere City Council ceased to exist and Auckland Council came into being. The Local Government (Tamaki Makaurau Reorganisation) Act 2009 dissolved the existing local authorities. Section 35(1) of the Act provided that, among other things:

… the functions, duties, and powers of each existing local authority under any enactment become functions, duties, and powers of the Auckland Council …

… all rights, liabilities, contracts, entitlements, and engagements of each existing local authority become rights, liabilities, contracts, entitlements, and engagements of the Auckland Council …

… anything done, or omitted to be done, or that is to be done, by, or in relation to, each existing local authority (including, to avoid doubt, the existing community boards of each existing local authority) must be treated as having been done, or having been omitted to be done, or to be done, by, or in relation to, the Auckland Council …

8.4
This made Auckland Council the signatory to a set of arrangements for the project, some of which had received the required confirmation by the Auckland Transition Agency and some of which had not.

8.5
As outlined, a contract or arrangement that needed to be confirmed by the Auckland Transition Agency was not considered valid if that confirmation was not obtained. The Infrastructure Funding Agreement and the Line Deviation Agreement with Transpower had been confirmed and were legally valid. However, the Works Development Agreements and Cost Sharing Agreements were not confirmed and so, as a matter of law, were invalid. In summary, Auckland Council inherited the agreements shown in Figure 5.

Figure 5
Agreements inherited by Auckland Council

Agreement Date Confirmed by Transition Agency?
Infrastructure Funding Agreement 22 February 2010 Yes
Line Deviation Agreement 29 October 2010 Yes
Works Development Agreement 1 22 October 2010 No
Works Development Agreement 2 28 October 2010 No
Works Development Agreement 4 22 October 2010 No
Works Development Agreement 5 22 October 2010 No
Cost Sharing Agreement 1 28 October 2010 No
Cost Sharing Agreement 2 28 October 2010 No
Southern Cable Terminating Station Agreement Waitakere City Council resolution 6 October 2010 No
Southern Cable Terminating Station Access Deed Waitakere City Council resolutions 6 October 2010 and 29 October 2010 No

8.6
Auckland Council was aware that the Auckland Transition Agency had not confirmed some of the contracts entered into by Waitakere City Council and that those contracts were therefore not valid. Faced with this situation, Auckland Council sought advice about the contracts it had inherited and the extent of the obligations under those contracts. This advice was from a firm of solicitors who had been involved in developing the contracts for Waitakere City Council and the previous Manager of Legal Services of Waitakere City Council.

8.7
As at November 2010, no staff from Waitakere City Council involved in the project transferred to the Auckland Council team responsible for the project. We understand there was little communication between the staff of Waitakere City Council and the staff at Auckland Council who would have responsibility or oversight of the project.

8.8
Auckland Council received the external solicitors' advice in November 2010. It then considered its position. That consideration included:

  • Waitakere City Council had properly executed the Line Deviation Agreement with Transpower and had that agreement confirmed. This meant that it was committed to paying the cost for placing the power lines underground. The estimated cost for this was about $17 million.
  • There was no corresponding back-to-back agreement with NZRPG to meet its share of this cost and to make land and easements available to Transpower for the southern cable terminating station. This sharing of costs and access between the parties was contemplated and was covered in Works Development Agreement 2. However, Works Development Agreement 2 was invalid. As a result, there was risk in Auckland Council relying on Works Development Agreement 2 to recoup NZRPG's share of the cost. This meant Auckland Council might be exposed to meeting the full cost.
  • One means of mitigating this was to suspend work on the relocation. This would likely create delay and could also increase overall costs.
  • Auckland Council understood that NZRPG was aware that the Auckland Transition Agency had not confirmed some of the contracts. NZRPG was reluctant to continue incurring costs implementing the Works Development Agreements without Auckland Council committing to paying its share of the costs under those agreements. This problem might also cause delay.

8.9
On 22 November 2010, the Team Leader of the Strategic Transformation Team recommended to the Chief Executive of Auckland Council that he re-sign in the name of Auckland Council those agreements that the Auckland Transition Agency had not confirmed. It was also recommended that the agreements be considered a package and that "it was commercially prudent to deal with all the contracts as a package because this is how the contracts are intended to operate". The view at this time was that the unconfirmed contracts were conditional and that, once the contracts were signed, they would be unconditional.

8.10
The nature of the development and the essence of the issue facing Auckland Council was described to the Chief Executive in this way:

1.0 Introduction

The Northern Strategic Growth Area (NorSGA) programme is the product of over ten years planning, consultation, and design focussed on delivering a job-rich northern edge of sustainable development to the former dormitory suburbs of Massey North/Westgate and Hobsonville. The overall programme comprises three stages, with the Massey North town Centre (MNTC) development being part of stage one.

A number of plan changes were initiated by Waitakere City Council (WCC) for the wider NorSGA programme, with Plan Change 15 covering the MNTC development. The WCC agreed to a public amenity and infrastructure investment programme and has provided $325m funding in its 2009 ten year [long-term council community plan].

The capex funds acquisitions, new roads, new park areas, stormwater, town square, library and other public amenities.

2.0 Issue

There are various legal documents that deliver the infrastructure elements of the PC15 / MNTC project. WCC has formally passed a resolution to enter into these agreements …

Although some of these contracts have been fully executed and are valid, a number of contracts did not receive [Auckland Transition Agency] confirmation and are therefore still "conditional".

8.11
The Chief Executive was told about the issue with the Auckland Transition Agency in this way:

The issue around [Auckland Transition Agency] confirmation involved clarification as the WCC approvals, the extent of the infrastructure works being agreed and adequate budget provisions in the [long-term council community plan]. Ultimately, time constraints have meant that while the clarification is able to be provided, it was not by 29 October [the last day before the statutory deadline] and hence the [Auckland Transition Agency] confirmation condition is not able to be satisfied.

8.12
The recommendation to the Chief Executive was to enter into the contracts in the form in which they were received from Waitakere City Council. This recommendation was supported by the Team Leader (Strategic Transformation Team), the Manager (City Transformation Projects), the Manager (Regional and Local Planning), and the Chief Financial Officer.

8.13
Further to the advice and recommendations, the Chief Executive of Auckland Council agreed on 25 November 2010 to execute replacement contracts for Works Development Agreement 1, Works Development Agreement 2, Works Development Agreement 4, Works Development Agreement 5, Cost Sharing Agreement 1, Cost Sharing Agreement 2, the Southern Cable Terminating Station Agreement, and the Southern Cable Terminating Station Access Deed.

8.14
Those replacement contracts were signed on 29 November 2010. In form, these contracts were exactly the same as those entered into by Waitakere City Council, except that the parties to the agreements were changed to expressly reflect that the agreements were now between Auckland Council and NZRPG. Being signed after 1 November 2010, these contracts did not require confirmation by the Auckland Transition Agency.

Specific steps taken by Auckland Council

A change to how Auckland Council paid the New Zealand Retail Property Group

8.15
Auckland Council also acted to change how it made payments to NZRPG under the Infrastructure Funding Agreement.

8.16
After 1 November 2010, Auckland Council identified that the payments made under the Infrastructure Funding Agreement were being paid to NZRPG monthly, rather than linked to the delivery of work. It also seemed to have identified that there might not have been any agreement between NZRPG and Waitakere City Council of estimates for work before that work began, as was required under the Infrastructure Funding Agreement.

8.17
The original intention was the payments would be made according to progress. The Infrastructure Funding Agreement provided that contributions towards constructing "black roads and associated services" would be "paid by progress payment on a progressive basis". However, in practice, NZRPG was paid on a monthly basis and the payments were not connected to progress. Auckland Council has told us that it was practically difficult to confirm the value of the ongoing Infrastructure Funding Agreement works against payments made to NZRPG. In Auckland Council's view, the Infrastructure Funding Agreement did not provide a clear mechanism for certifying the value of the work performed to date.

8.18
Auckland Council acted to obtain the agreement of NZRPG to change the payment process. Auckland Council told us this was because NZRPG was consistently about 10% behind delivering the works in comparison to the payments it received. Under the change, payments became due when Auckland Council received satisfactory evidence of progress. This progress would be measured by NZRPG's project engineer and NZRPG's project manager providing letters certifying the percentage of work completed. Payment would then be made on actual costs.

8.19
As discussed in Part 9, Auckland Council has systems to process and verify payments.

8.20
Changing how the "progress payments" were made so they were in line with the work completed was an improvement to the arrangements with NZRPG. Being able to demonstrate a connection between the services provided and payment for those services is expected practice.

Procurement under the Works Development Agreements

8.21
The Works Development Agreements taken over by Auckland Council and re-signed on 29 November 2010 were as agreed between Waitakere City Council and NZRPG.

8.22
Those agreements provided a process for work under them to be procured. Under that process:

  • NZRPG would procure and project manage the carrying out and completion of the Council Works (as defined), for which NZRPG would receive an 8.5% fee.
  • NZRPG would enter into contracts for the completion of the Council Works "subject to the prior approval of the Council to the identity of the contractor and the contractual documents".
  • The Council's approval would not be "unreasonably withheld".

8.23
Under this process, NZRPG proposed appointing a company as the head contractor. The amount to be paid under the Works Development Agreements was about $32 million.

8.24
Auckland Council was required to approve that recommendation. To evaluate whether to give that approval, Auckland Council carried out a non-price attributes assessment of that company. After this analysis, Auckland Council approved the appointment.

8.25
In approving this appointment, Auckland Council appreciated that it was not best practice. Best practice would have been to put the work under the Works Development Agreements to the market, seeking the best value possible for the expenditure. That said, the process for the procurement had been agreed and outlined in the contract entered by Waitakere City Council. Auckland Council added the non-price attributes assessment. Doing so provided a measure for whether the suggested contractor would be able to perform the work required.

8.26
When this appointment was made, there was a close connection between NZRPG and that company. The company was already appointed as the head contractor under the Infrastructure Funding Agreement. One of the directors of the company was (as at November 2010) also a director in some of the NZRPG companies involved in the project:

  • One of those companies owned land central to the development and was party to the Infrastructure Funding Agreement and Works Development Agreement 2. The other director of this company was the Managing Director or Chairman of other NZRPG companies.

8.27
Another of those companies was Westgate Properties Limited, which is party to the purchase by Waitakere City Council of Westgate Street in May 2009. It appears that Auckland Council was aware of this relationship from the information it considered in November 2010. It was not evident from the evidence we saw if, or how, it considered the relationship as part of approving the appointment of the company. Auckland Council has told us that it did assess the risk of a conflict of interest at that time but considered that risk to be low.

Changes to procurement

8.28
The absence of a competitive process for subcontractors doing the work under the Works Development Agreements also concerned Auckland Council.

8.29
To address this, Auckland Council negotiated with NZRPG to introduce a closed tender process that required a minimum of three tenders to be sought from a pool of contractors for each item of work tendered. NZRPG ran this process.

8.30
The pool was the list of subcontractors proposed by the company appointed as the head contractor. As such, the group of potential contractors was closed, so the process was not an open market procurement.

8.31
When those tenders were received, Auckland Council evaluated the tenders by using its quantity surveyor to identify any aspects of the tenders that were high or not within market limits. This went some way towards ensuring that a reasonable price was paid for the works. However, it is not a substitute for obtaining prices from the open market. An open market process would have been better practice.

8.32
More recently, Auckland Council has entered into further Works Development Agreements using different procurement processes. These are Works Development Agreement 6 (for work on the town square/piazza) and Works Development Agreement 7 (a variation providing for a higher level of finish on the roads).

8.33
Both of these more recent Works Development Agreements specifically required three tenders for Council works. They are a more open market process. Further, one of those contracts (Works Development Agreement 6) introduced the engagement of a consultancy company to carry out construction observation services for the Council. This is another level of independent verification and assurance about value for money.

Auckland Council's procurement policy

8.34
When the councils amalgamated on 1 November 2010, there was a mix of procurement policies and Auckland Council did not have one consistent policy for procurement. The draft policy it prepared in August 2011 outlined that, as a matter of principle, procurement would be open, fair, and contestable. The draft policy said that Auckland Council was committed to acting with integrity and would honour its existing agreements and respect existing suppliers. Having a procurement policy such as this is good practice.

8.35
Auckland Council's current procurement policy reiterates the principle of open and competitive procurement processes, where possible and appropriate.

The Meredith Connell report

8.36
In October 2011, the Regional Development and Operations Committee of Auckland Council unanimously agreed that an independent review into probity issues raised in relation to Westgate be initiated. The Committee agreed that the review was to be reported back to it for further consideration. Meredith Connell was commissioned to carry out that review.

8.37
This is a different piece of work to the advice taken by Auckland Council in November 2010 after the amalgamation of the Councils. That advice was taken to gain an understanding of the project, the arrangements inherited from Waitakere City Council, and Auckland Council's position. This review by Meredith Connell was a legal and factual review of the arrangements, obligations, and any risk.

8.38
The Meredith Connell review was received by Auckland Council in April 2012. It includes a summary of the arrangements entered into by Waitakere City Council and then by Auckland after 1 November 2010, makes some comments about those arrangements, and makes recommendations about actions Auckland might take.

8.39
The Regional Development and Operations Committee discussed a confidential summary of the Meredith Connell report at the public excluded part of its June 2012 meeting. Copies of the Meredith Connell report were available to Committee members to read but not to retain in their possession. The Committee agreed that "the report and associated resolutions remain confidential until the reasons for confidentiality no longer exist".

8.40
We have considered the contents of that review in preparing this report. We comment later about Auckland Council's use of the review.

An agreement with the New Zealand Retail Property Group about development contributions

8.41
As outlined earlier, Waitakere City Council had the ability to recover development contributions from NZRPG as referred to in the Infrastructure Funding Agreement. It also entered into an arrangement with NZRPG in October 2010 about relief from development contributions.

8.42
After the Meredith Connell report, Auckland Council decided to formalise the agreement about development contributions made between Waitakere City Council and NZRPG by exchange of letters on 27 and 28 October 2010. Documents show that Auckland Council appears to have considered that the purpose of the agreement between Waitakere City Council and NZRPG was to provide some certainty to NZRPG and to bind the Council.

8.43
On 8 June 2012, the City Transformation team at Auckland Council sought approval from the Regional Operations and Development Committee to enter into a development contributions arrangement with NZRPG. That approval was provided on 26 June 2012.

8.44
At the time, Auckland Council considered that the arrangement would put it in the same position as Waitakere City Council, with the advantage of the certainty of a formal agreement. The Council calculated that the arrangement was likely to be "cost neutral when compared to the current draft development contributions policy likely to apply at the time any development contributions are assessed".

8.45
Auckland Council and NZRPG entered into this agreement on 12 June 2013.

8.46
The agreement recognised that Waitakere City Council and NZRPG had "agreed certain matters in relation to the payment of development contributions for development". It stated that Auckland Council had the power under its development contributions policy to require development contributions and to enter into agreements about development contributions where that was in the interests of the Council and the developer.

8.47
The agreement provides for offsetting the development contributions, where Auckland Council reduces the amount of development contributions assessed and invoiced to NZRPG up to an offset amount of $2,520,842 plus GST. The purpose of reducing the contributions in this way is described as recognising the value to the Council of the Comprehensive Development Plan prepared by NZRPG in 2007 for Precincts A and B of Westgate Town Centre, and to make a contribution to the costs incurred by NZRPG in obtaining that plan. Auckland Council told us that, as at September 2015, there had been offsets to the value of $2,353,175 plus GST.

8.48
The agreement also provides for postponing when Auckland Council will assess development contributions to when building consent is granted for the development. When building consents are granted, NZRPG is to provide a bond to the amount of the development contributions.

8.49
The agreement also provides for remission of development contributions if, when applications for resource consent are made, NZRPG can demonstrate a certain rating for how those buildings minimise demand on infrastructure.

8.50
The agreement also provides for a maximum level of development contributions. That maximum level is the lesser of the amount specified in the development contributions policy specified at the time of the remission and the amounts specified in agreement for residential and non-residential developments outlined in the agreement.

8.51
At the time, Auckland Council did not have a development contributions policy that fully integrated the various policies inherited from the previous councils. This was in place from 1 July 2012. Until that time, Auckland Council used an interim policy, which adopted Waitakere City Council's development contributions policy.

8.52
Under the interim policy, Auckland had the power to impose development contributions and, like Waitakere City Council before it, the power to enter into agreements about those contributions. Specifically, it had the power to postpone, remit on a general basis, and remit under the Tool for Urban Sustainability Code of Practice, if certain criteria were met.

8.53
Under that policy, Auckland Council had the authority to enter into the agreement with NZRPG. The policy does not specifically refer to placing a maximum amount on the development contribution.

8.54
When Auckland Council entered into the development contributions agreement with NZRPG, it had a new development contributions policy in place. That policy does not appear to allow for development contributions to be remitted.

8.55
From the evidence we have seen, it appears that Auckland Council considered it necessary to the ongoing development of the new town centre and to the ultimate pursuit of the overall vision to enter into this formal agreement with NZRPG. It perceived that not doing so presented a risk to the project and possibly to the Council for not honouring an agreement Waitakere City Council had made with NZRPG.

8.56
That said, the agreement with NZRPG formalised the arrangement made with NZRPG. The offset arrangement is still in effect. That offset arrangement provides practical relief to NZRPG, because it is not required to pay contributions it might otherwise have had to pay.

8.57
We have been told that, as at September 2015, Auckland Council had received development contributions payment of $266,000 from NZRPG and further charges of $1,681,140 were applied to NZRPG but not invoiced because they were credited to the offset.

Relocation of power lines and a variation to Works Development Agreement 2

8.58
As outlined in Part 2, Waitakere City Council entered into an agreement (the Line Deviation Agreement) with Transpower about relocating the power lines over the development area. That agreement provided that Waitakere City Council would pay Transpower for the costs of the relocation.

8.59
Through Works Development Agreement 2, NZRPG and Waitakere City Council agreed that Waitakere City Council was responsible for 35% of those costs and NZRPG was required to pay the other 65% of the costs.

8.60
The agreement gave Waitakere City Council (and now Auckland Council) a right of set-off of any overdue amounts against amounts it owed to NZRPG and to register security arrangements over the development land. NZRPG was required to use its best endeavours to arrange (by 31 January 2011) security for the Council for NZRPG's payment obligations under Works Development Agreement 2. Failure to comply with this requirement constituted a material breach of Works Development Agreement 2.

8.61
The effect of this arrangement is that Waitakere City Council (and then Auckland Council) has taken financial responsibility for NZRPG's proportion of the relocation costs. Waitakere City Council, and not NZRPG, had overall responsibility for paying the overall costs of putting the power lines underground to Transpower. This exposed Waitakere City Council (and then Auckland Council) to the risk that NZRPG would not meet these costs. Payment of that share was through the agreement outlined in Works Development Agreement 2.

8.62
As we understand it, NZRPG did not make the required security arrangements, nor did it make any payments to Waitakere City Council.

8.63
In 2012, Auckland Council agreed with NZRPG to postpone the payment of NZRPG's share of the costs. NZRPG had approached Auckland Council about varying the payment provisions in Works Development Agreement 2. Rather than making the payments as outlined in Works Development Agreement 2, it was suggested that the payments towards the relocation costs be:

  • made on a pro rata basis as the overall area was developed;
  • subject to a minimum interest rate; and
  • paid by a future date, unless extended by agreement.

8.64
When the arrangement was proposed to the Regional Operations and Development Committee of Auckland Council, there was no mention that NZRPG had not complied with the earlier agreed terms or payment.

8.65
The Regional Operations and Development Committee approved this arrangement on 26 June 2012, and it was referred to the then Chief Executive to sign. An agreement was made between the parties on 31 October 2012. The payment of NZRPG's share of the costs became linked to the issue of Code Compliance Certificates or Certificates of Public Use under the Building Act 2004 of units in Precinct A and Precinct B of Westgate Town Centre. Interest remained payable to the future payment date. One of the reasons the City Transformation team gave for recommending this variation was the "substantial investment made by council over a long period to forge a partnership to achieve a successful development of Northern Strategic Growth Area and Westgate in line with council's vision". It appears that Auckland Council perceived a risk to NZRPG, and so the project, if this agreement was not made. The variation was seen as the most prudent action. Another apparent motivation was that this arrangement would encourage NZRPG to efficiently progress the project.

8.66
The risks associated with the approach taken by Auckland Council (and Waitakere City Council before it) have become real. As at 30 June 2015, NZRPG owed $11.3 million of its share of the relocation cost (being the initial payment of about $9 million plus interest). Auckland Council has told us that, as of 20 September 2016, NZRPG had paid $2,982,796 on the issuing of Code Compliance Certificates for buildings against the relocation debt. NZRPG had also been invoiced for the full relocation debt, including the interest charged on remaining amounts owing.

8.67
Without relocating the power lines, Waitakere City Council's vision of a town centre might not have been possible. However, in our view, the financial risk of the relocation was passed from NZRPG to the respective councils. Further, NZRPG was not required to make the contemplated payments until sometime in the future.

What is our view on the transparency with which Auckland Council managed the project?

8.68
We have received complaints from the public about not being able to get information about the project. We received complaints from people who were unable to obtain a copy of the Meredith Connell report provided to Auckland Council. We also received complaints from Council members about what they considered to be a lack of transparency.

8.69
The commissioning of that report was confidential. The report itself was considered confidential/commercially sensitive and legally privileged. It was not widely disseminated to staff. As above, the findings of the Meredith Connell review were summarised in a report distributed to all Councillors and discussed at the public excluded part of a June 2012 Committee meeting. However the full copy of the Meredith Connell report was only made available to Councillors in the presence of staff and on the basis it was returned.

8.70
It is important for a local authority to be as open as possible with the ratepayers it serves and the elected officials who represent those ratepayers. Proper financial management and accountability processes, and transparency, serve the interests of all parties. As we have said in other contexts, effective public debate requires transparency, which strengthens public sector accountability and promotes fairer and more effective and efficient governance. Transparency includes responding to requests for information, particularly if the people need the information to engage in the decisions that affect them.

8.71
There will be times when a council is involved in commercial negotiations with external parties and, like any other such negotiator, is sensitive to information about the prospective arrangement being divulged to other parties. This would put the council at a competitive disadvantage and could prejudice the relationship with the other party. The perception that such negotiations might be divulged to the public in the future could also hinder future commercial discussions with this or other parties.

8.72
This being so, it is reasonable for a council to conduct commercial negotiations on a confidential basis, where that is warranted, and not publicly discuss the nature of those negotiations while they are under way. This protection is reflected in the ability to withhold information of this type under the Local Government Official Information and Meetings Act 1987. This is the approach currently taken by Auckland Council.

8.73
However, a council should then be prepared to be as transparent as possible about the outcome of that negotiation. The position taken by the council and the expenditure to which it is committed on the ratepayer's behalf should be open to scrutiny and discussion. The council should be able to demonstrate the reasons for the commitments it has made and demonstrate the value for money being obtained.

8.74
In this case, it might have been reasonable for Auckland Council (and Waitakere City Council before it) to conduct negotiations with NZRPG and other parties on a confidential basis and to consider its options, the decisions it might make, and the reasons for those decisions without necessarily being required to release that material to the public.

8.75
However, once those agreements were made, there is less reason for the Council (or Council staff) to withhold that information. As the agreements for the project are of wide interest, it is in the public interest for the Council to provide interested parties with information about the agreements, the reasons for decisions, and the outcomes achieved.

8.76
An immediate example of this is the Meredith Connell report, which Auckland Council has not released. Not releasing that report or being more open with other information about the project led to many of the concerns raised. The timely release of information about the agreements could have significantly reduced the level of complaints and criticisms directed at Auckland Council.

8.77
Many of the concerns raised with us could have been allayed by Auckland Council releasing information about the agreements. We understand that Auckland Council plans to release the report at some stage and in some form. We encourage that to happen. Where appropriate, parts of the report could have been protected so as not to reveal legal advice or other matters that could properly be withheld. With those measures in place, the information in that report would have provided those complaining about secrecy with most of the information they would need to be aware of the background to the project and the contractual agreements entered into by Waitakere City Council and Auckland Council.