Part 7: The contracting arrangements

Inquiry into procurement of work by Westland District Council at Franz Josef.

The work was carried out in two stages:

  • The first stage involved using a Caterpillar D11 bulldozer to shift riverbed gravel to build a stopbank.
  • The second stage involved completing the stopbank and placing rock along the river side of the stopbank to protect it from erosion.

The first stage was carried out by Westroads, as head contractor, using two subcontractors – Blakely Mining and South Island Plant Hire Limited (South Island Plant Hire).

The second stage was carried out by MBD under a direct contract with the Council.

In this Part, we explain:

  • how these contractors were appointed to carry out the work;
  • the contracting arrangements entered into by the Council; and
  • how the contracts were managed.

The first stage: Westroads Limited appointed to act as head contractor

We were told that, the day after the 5 July Council meeting, the Acting Chief Executive called the General Manager of Westroads to ask it to act as "head contractor" for the work.

Westroads is a wholly owned subsidiary of the Council. It operates as a general contractor, specialising in water utilities maintenance, roading, waste management, and parks and reserves.

The appointment of Westroads had not been discussed at the Council meeting. We were told that the appointment was necessary because there were no Council staff with capacity to manage the work at the time.

Terms of the contract with Westroads Limited

It is not clear what the Council asked Westroads to do at the time it was appointed. There are no records of their discussions and a written contract was not entered into until 11 September – by which time the work Westroads was responsible for had already been completed. For the time that Westroads was appointed as head contractor for the work, the agreement it had with the Council was verbal only.

Under the terms of the contract that was retrospectively signed, the agreement between Westroads and the Council was:

  • Westroads was required to provide a Caterpillar D11 bulldozer for the purpose of building a gravel stopbank as shown in a drawing attached to the contract. (The drawing was the one made by the Acting Group Manager: District Assets on 21 July, after talking to Councillor Havill).
  • The Council was required to pay an "all-inclusive" hourly rate for the provision of the bulldozer, plus "actual and reasonable transport, establishment, and disestablishment costs and costs of setting out the work".
  • The parties agreed a nominal schedule of machines hours needed to complete the work and a time frame within which it needed to be completed.
  • The Council was responsible for obtaining the necessary resource consents for the work.

Because the contract was signed retrospectively, it is not clear whether the contract accurately recorded the parties' understanding of their respective responsibilities at the time the work began or what was recorded simply reflected what happened in practice.

The subcontracts

Two different companies were involved in the subcontracting arrangements. They were Blakely Mining, one of the companies Councillor Havill had spoken to when the Mayor asked him to source contractors for the work, and South Island Plant Hire.

Those we spoke to – including Westroads – were not able to explain the relationship between these two companies or which of them had actually been contracted to carry out the work. We were not provided with any written contracts with either company. Apart from one invoice – from South Island Plant Hire to Westroads – there is nothing in writing with either company.

The general assumption among those we spoke to seems to be that Westroads contracted Blakely Mining to carry out the work. However, it was South Island Plant Hire that invoiced Westroads for the work, not Blakely Mining.

Our understanding is that the bulldozer is owned by South Island Plant Hire but is operated by Blakely Mining. Our assumption is that Westroads effectively subcontracted the work to South Island Plant Hire, and that South Island Plant Hire had a separate arrangement with Blakely Mining in relation to hiring the bulldozer driver. However, because there are no written contracts, the arrangements between Westroads, Blakely Mining, and South Island Plant Hire are unclear.

Payment terms

We understand the rate South Island Plant Hire charged Westroads for the bulldozer was the rate Councillor Havill had negotiated when he spoke to Blakely Mining.

Westroads on-charged the amount invoiced by South Island Plant Hire to the Council and added a 5% management fee. We were told this was Westroads' standard management fee. The management fee was not recorded in the head contract between the Council and Westroads and appears to have taken the Council by surprise.

The second stage: Appointment of MBD Limited

The second stage of the work involved completing the earthmoving work, including correcting the slope of the stopbank and placing rock along the river side of the stopbank to protect it from erosion.

As noted in Part 6, by the time the first stage of the work was complete (9 August 2017), the Council had appointed a Project Manager. The Project Manager's responsibilities included putting in place and managing the necessary contracts. Westroads' involvement therefore ended once the first stage of the work was complete. The second stage was managed by the Project Manager.

The contractor appointed to carry out the second stage of the work was MBD. We were told that MBD is one of the leading companies on the West Coast involved in the supply and placement of rock. MBD also owns a nearby quarry at Whataroa. MBD was one of the companies approached by Councillor Havill when sourcing contractors for the work.

Terms of the contract with MBD Limited

The Council entered into a written contract with MBD on 31 August 2017.

Under the contract, the Council agreed to pay MBD an all-inclusive rate per tonne for the supply and placement of rock, and an all-inclusive rate per hour for the hire of excavators and a dump truck. Our understanding is that these rates are the rates Councillor Havill had agreed with MBD.

The contract described the work to be done, including drawings and the payment terms. The basic format of the contract between the Council and MBD was the same as the one between the Council and Westroads, but it was much more comprehensive.

The contract identified the personnel at MBD who would be responsible for the work and their respective roles and responsibilities for matters such as health, safety and the environment, traffic management and site supervision, compliance with the contract specifications, and quality control. It also included a detailed contract management plan.

MBD began work on 4 September 2017 and the work continued into early November 2017.

Our observations on the contracting arrangements

No competitive process

There was no competitive process for sourcing contractors for the first stage or the second stage of the work. In effect, the contracting arrangements the Council entered into simply reflect the arrangements made by Councillor Havill when he first approached Blakely Mining and MBD before the Council meeting.

A competitive tender or request for proposal process is the most obvious way an organisation can ensure that it is getting value for money when buying goods or services. There are circumstances in which adopting a competitive process might not be possible or necessary – for example, when work is highly specialised and there is only a limited pool of potential suppliers, when council staff have recently tested the market and have a good understanding of the availability of suppliers and what constitutes competitive pricing, or when the work is urgent and there is no time to test the market.

In this case, it is unclear whether the Council's decision not to carry out a competitive procurement process was justified.

In the case of the first stage of the work, this is because it appears the Council simply accepted the advice of the Mayor and Councillor Havill that the work was urgent and that a bulldozer of the type and size operated by Blakely Mining was needed to do the job. No advice was sought from Council staff or external advisers to verify either of these points. Council staff were also not consulted about the availability of other suppliers that might be capable of carrying out the work or whether the quotes Councillor Havill had received for the work were competitive.

As a result, it is unclear whether the Council's decision not to carry out a competitive process was justified.

The second stage of the work did not begin until two months after the Council made its decision. That meant the Council had time to at least seek comparative quotes or expressions of interest from other potential contractors, even if the work was considered urgent.

The Council gave us several reasons why it did not do this. It told us that MBD owns the only local source of rock, other suppliers of rock would have been more expensive, and the Council would not have got such a good deal if it had followed a tender process because MBD would have known it was the only company that would tender and could have priced accordingly.

There was general agreement among those we spoke to that MBD is one of the leading contractors on the West Coast and that Councillor Havill obtained a good price from MBD for the rock armour work. However, there are other suppliers of rock and contractors on the West Coast, including the Regional Council.

Therefore, as with the first stage of the work, it is not clear whether the Council's decision not to carry out a competitive process for the second stage was justified.

Appointment of Westroads

With hindsight, it is not clear what benefit the Council received from appointing Westroads to act as head contractor.

Under the terms of the contract Westroads and the Council entered into retrospectively, Westroads was appointed to act as the head contractor and was responsible for providing the bulldozer and getting the stopbank built. However, it is not clear whether the arrangement recorded in the contract records the parties' understanding at the time, or what was actually happening "on the ground".

Westroads had not been involved in planning the work or negotiating with the subcontractors, and the arrangements it entered into with the Council and the two subcontractors appear to simply reflect what Councillor Havill had agreed with Blakely Mining.

It is also unclear what Westroads did in a practical sense. We heard different views about this. Westroads said that it acted as the Council's "eyes and ears" in Franz Josef. Others told us that Westroads did not end up doing anything. Despite the different views, and the lack of certainty about the contracting arrangements, it appears Westroads was, for a short period, acting as an intermediary between the Council and the bulldozer driver, and keeping an eye on how the work was progressing.

By the end of July 2017 though, the Council had contracted an engineer to oversee the stopbank work, including the bulldozer work, and to manage the contracts. Westroads was no longer required. Westroads was involved, in a practical sense, for only 2-3 weeks.

We were told that Westroads was appointed because it was the Council's normal practice to appoint Westroads to carry out work of this type and because there were no council staff available at the time to manage the work. It is also possible that, when the Acting Chief Executive first approached Westroads, the intention was for Westroads to have a bigger role in managing the work. However, once the Council appointed its own Project Manager, Westroads' involvement was no longer considered necessary.

The appointment of Westroads might have made sense in the short term but, with hindsight, it is not clear what benefit the Council got from appointing Westroads to act as head contractor for the work or, conversely, how much Westroads understood about what it was being asked to do and the nature of the risk it was undertaking.

Lack of written contracts for the first stage of the work

The first stage of the work, involving Westroads, Blakely Mining, and South Island Plant Hire, was carried out without any written contract between Westroads (as head contractor) and the Council. There were also no written contracts entered into with either of the subcontractors or any written records (such as emails or draft documents) of any matters relating to the negotiation of these arrangements.

The lack of written contracts, or indeed any sort of agreement in writing, during the first stage of the work meant that, had something gone wrong (for example, in relation to the quality of the work or a breach of the Resource Management Act), it would have been difficult to determine who was legally liable.

The lack of written contracts for the first stage of the work might also be a problem after completion of the work. As there are no written contracts with either subcontractor, should any problems arise with respect to the quality of the work that was carried out, it is unclear what recourse (if any) either the Council or Westroads will have.