Part 9: Our overall findings

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

It is clear from all those we spoke to that there was genuine concern about the Waiho River and the risk it posed to the wastewater plant and neighbouring properties. The flood risk had been known for many years, but it was increasing over time due to ongoing riverbed aggradation. At the same time, the Council needed to decide on both short-term and longer-term solutions for the wastewater issues in Franz Josef.

It is important to acknowledge the complexity of the challenges the Council was facing, the real threat posed to the wastewater plant by the Waiho River, and the fact that the decision to take steps to manage the flood risk was a decision the Council was entitled to make. It is not what the Council decided to do that has concerned us in our inquiry, but the way that decision was made and carried out.

We have already identified many of our concerns in this report. In this Part, we have summarised our overall findings and concerns:

  • The scope of the work – whether the work that was carried out went further than what was authorised.
  • The Council's decision-making process – whether it was up to the standard required of public organisations.
  • The involvement of the Mayor and Councillor – whether, as elected members, they involved themselves inappropriately in operational matters.
  • Councillor Havill's conflicts of interest.

The scope of the work

Our first major concern relates to the scope of the work and whether, in constructing a new stopbank, the Council has gone further than what was envisaged in the resolution that authorised the work.

The minutes of the Council's 5 July meeting record that the Council approved work to "maintain the flood embankment" (that is, the raised access road) and "develop a new infiltration gallery" for the wastewater plant. The completed work involved building a significant 700-metres section of new stopbank. No work was carried out at the time in relation to the infiltration gallery.

We heard different opinions among elected members about whether the new stopbank was authorised by the Council's resolution. Some believe it was. Others disagree and objected at the time to the extent of the work.

We accept that there might have been an element of genuine confusion about what the Council was proposing to do. This was in part because the option of building a stopbank had previously been raised at the Council, and in part because of the urgency with which the decision was made. The messages being sent to the community by the Mayor's Facebook page about the scope of the proposed work might also have led to confusion.

However, in our view, the extension the Council built to the existing floodbank went well beyond the ordinary meaning of "maintenance" of an existing asset – which is what the resolution authorised.

The resolution did not expressly authorise either a new stopbank or an increased height for the existing floodbank. We accept that a maintenance design could involve some extensions (both linear and vertical) to the existing floodbank. However, the language of the resolution, and the details in the report that was provided to the Council to explain and support the proposed work, do not provide any basis for a significant extension to the floodbank or the construction of a new stopbank.

A secondary but nonetheless important point is that other work that was approved as part of the same resolution and that was necessary to ensure that the wastewater plant complied with the conditions of its resource consent (namely, the development of the infiltration gallery) was not carried out at the time. Therefore, it had to be carried out, presumably using other funds, at a later date.

Whether the construction of a stopbank was properly authorised, and whether it was the right thing to do, are questions that probably no longer have any practical relevance. The stopbank has been built and, even though some of the elected members voiced their objections at the time, the decision to build it has, in effect, been endorsed by the Council. The point has also been repeatedly made to us that, so far at least, it has achieved its intended purpose of protecting the wastewater plant from flooding.

None of this makes what the Council did right. A decision to carry out urgent work to maintain an existing asset and to ensure that it is legally compliant is fundamentally different in nature and scope from a decision to build a significant new asset, although the amount of money involved in this case might have been the same.

The construction of a stopbank, by its nature, required engineering input, an assessment of the potential impact on other parts of the river, and consultation with affected parties. It also triggered potentially different legal requirements under both the Local Government Act and the Resource Management Act, and there were issues that needed to be considered about ongoing maintenance costs.

Had the Council intended from the start to build a new stopbank, these and other relevant matters should have been fully considered at the time the decision was being made, not only after work was already under way. We do not accept that doing things properly would have slowed the construction process in any significant way.

Acting outside the scope of a council decision is a serious matter. A council is a collective decision-making body. Unless given explicit authority to do so, neither council staff nor individual elected members of a council (including the Mayor) have any authority to make commitments or to take executive action on behalf of a council or to vary the decision a council has made.

Acting outside of the scope of a council decision also triggers potentially serious legal consequences for both the council and any individuals involved. A detailed analysis of these consequences is beyond the scope of this report, but it is worth highlighting some of the main ones. They include:

  • Legal proceedings to injunct the council.
  • Potential invalidation of the council's insurance cover.
  • For individuals involved (staff or elected members), if their actions result in civil or criminal proceedings being brought against the council, for example, under the Resource Management Act, potential personal liability.
  • If individuals are found to be personally liable, potential "disavowal" of their actions by the council, meaning the council could refuse to indemnify them in respect of any legal costs or penalties they incur on the grounds that their actions were not authorised by the council in the first place.

Westland District Council's decision-making process

Our second major concern relates to the Council's decision-making process.

Our assessment about whether the Council's decision-making process was adequate has been complicated by the fact that, as already noted, there is disagreement within the Council about what the Council's decision actually was (that is, whether it was a decision to carry out urgent maintenance work on an existing asset or a decision to build what was arguably a significant new asset).

Whatever the decision though, the process the Council followed when making it was, in our view, inadequate both at the time, and even more so, in retrospect, once the scope of the Council's undertaking became clear. We also have doubts about whether the Council's decision-making process complied with the requirements of the Local Government Act.

Any good decision-making process involves at least these basic stages:

  • identifying that a decision needs to be made;
  • gathering relevant information to better understand the situation;
  • identifying options; and
  • weighing the evidence and choosing a preferred option.

For councils, these stages are not just good practice or "nice to haves". They are explicit legal requirements. The Local Government Act sets out several principles and requirements for good decision-making that all councils are required to comply with. These include:

  • The principle that a council should conduct business in an open, transparent, and democratically accountable manner.
  • The principle that a council should provide opportunities for Māori to contribute to decision-making processes.
  • The requirement for a council to seek to identify all reasonably practicable options and assess their advantages and disadvantages.
  • The requirement for a council to consider the views of those likely to be affected by, or interested in, the decision.

Councils are also required to have a Significance and Engagement Policy that sets out how they will assess the significance of each decision, and how and when communities will be engaged on different types of decisions.

These requirements apply to every decision a council makes – big or small. The Local Government Act recognises the need for proportionality and gives councils broad discretion to decide how to comply in a way that is proportionate to the significance of the particular decision. But councils must turn their mind to how they will comply with each of the requirements.

It is not uncommon to hear decision-making requirements in the Local Government Act and other similar legislation being dismissed as unnecessary regulation or "red tape". Public sector decision-making requirements can cause particular frustration for those who are used to running their own businesses or being answerable to only a relatively small group of shareholders or other stakeholders.

But public sector decision-making is different. Public organisations are accountable to the communities they serve and, as we have said in other reports, every public organisation is exercising public power. The essence of the rule of law is that public power must be exercised in accordance with the law. Complying with the requirements of the Local Government Act and any other legal requirements when making decisions is not optional.

For councils, being able to demonstrate that decisions are being made lawfully and for the benefit of the community is all the more important because the council is collecting and spending the community's money, and because the only opportunity the community has to exercise control over those making decisions on its behalf is at the triennial local government elections.

The discipline imposed by the decision-making requirements of the Local Government Act is therefore essential in holding local authorities to account. These requirements are, in effect, the building blocks for democratic and responsible decision-making in local government.

Many of the concerns we have about the Council's decision-making process in this case have already been identified in our report. It is not necessary for us to repeat all of them in detail here. However, it is worth repeating the main ones.

The Council did not seek or receive any expert advice to inform its decision. For example, advice on the nature and immediacy of the risk facing the wastewater plant or whether the proposed work was an efficient or effective response to that risk.

There is no evidence that other options for emergency measures were considered, even if those options were only about reducing the risk in the short term.

There was no business case to support the work.

The work had potentially significant consequences for other organisations, property owners, and local iwi. However, the Council did not talk to or consult anyone about the plan until after it had been approved.

There is also no record of the Council considering the views of those likely to be directly affected by, or interested in, the decision – in particular, NZTA and the Regional Council.

There is no record of the Council considering its decision-making obligations under the Local Government Act, including its significance and engagement policy, during the course of its decision. However, we recognise that the failure to consider the significance and engagement policy might have been because, at the time, not all those making the decisions realised that the proposed work was potentially significant.

There is no record of the Council turning its mind to whether it could rely on the emergency works provisions of the Resource Management Act to justify carrying out the work without first obtaining a resource consent. However, that failure might have been because not all those making the decisions were aware of the scope of the proposed work and the implications this had in terms of the Council's compliance with the Resource Management Act.

We acknowledge that the Council clearly had a wide-ranging discussion before making its decision. We also acknowledge that some of the issues the Council would have needed to take into account before making its decision are likely to have been canvassed during that discussion or at previous Council meetings, where issues relating to the wastewater plant and/or flood risk were discussed.

However, the fact remains that the Council cannot provide adequate evidence to us or the community that a proper and lawful process was followed and that, when making the decision to carry out the work, all relevant factors were taken into account and all relevant options considered and weighed. In our view, where their money is being spent, the community is entitled to better than that.

Involvement of the Mayor and Councillor Havill

Our third major concern relates to the role played by the Mayor and Councillor Havill in driving the decision to build the stopbank and sourcing contractors to build it.

There was a general acceptance, based on expert advice, that the Waiho River posed a significant and increasing flood risk to the wastewater plant as a result of aggradation of the river. However, the assessment that there was an imminent flood risk that needed to be addressed as a matter of urgency was made by two of the elected members — the Mayor and Councillor Havill. It was the Mayor and Councillor Havill who then came up with the proposed solution – a stopbank — and Councillor Havill who sourced and negotiated arrangements with potential contractors.

Therefore, it was effectively on the basis of the views of two of the elected members that the Council committed $1.3 million for what become reasonably major infrastructure work.

The close involvement of elected members in driving and implementing the Council's decision to build the stopbank has led to inevitable concerns about the blurring of lines between governance and management. As we discuss in more detail in the next section, these concerns have been particularly acute in the case of Councillor Havill, because of his close personal connections with some of those subsequently engaged by the Council to carry out the work.

Any number of good practice guides make the point that, for an organisation to function well and to be able to account properly to its stakeholders, there needs to be a clear distinction between those governing the organisation and those managing it. This principle applies generally across all sectors and all types of organisations.

The role of managers is to carry out the day-to-day operations of the organisation. The role of the governing body is to ensure that systems and processes are in place that shape, enable, and oversee the management of an organisation.

In practice, the separation between governing bodies and management might not always be black and white. For example, when an organisation is facing particularly challenging issues, it might be necessary and appropriate for the governing body to become more closely involved in operational matters.

However, the general rule is that clear roles and responsibilities make the differing interests of management and governance transparent and foster effective decision-making. There is a need to guard against the risk of those governing becoming too closely involved in operational decisions because it limits their ability to then hold management to account.

The Local Government Act draws a clear distinction between the roles of governance and management. The role of elected members is to govern, not to manage. Elected members have no executive authority, except as specifically delegated to them, and have no authority to instruct council staff or those carrying out work on behalf of the council.

The Mayor and Councillor Havill told us that when they became concerned there was an imminent flood risk, the reason they had to get personally involved and take on the role of sorting out the problem was because the matter was urgent and there were no staff available at the time to deal with it. We do not accept this.

We acknowledge the disruption at the Council resulting from the resignations of the previous Chief Executive and the Group Manager of the District Assets Team. We also acknowledge that the District Assets Team was under-resourced at the time. However, by early July 2017, when these events took place, the Council had an experienced Acting Chief Executive who had been in his role for three months and who was a former Chief Executive of the Council. The Council also had an Acting Group Manager: District Assets, who had been in the role for two months.

It is not clear to us why the Mayor and Councillor Havill did not simply refer their concerns, proposed solution, and names of potential contractors to the Acting Chief Executive, and leave it to him and Council staff to determine (a) whether the work was necessary, (b) what needed to be done, and (c) who should be engaged to do it. We do not accept that it was necessary or appropriate for the Mayor or Councillor Havill to involve themselves in the way that they did, however well-intentioned they might have been.

It is often in the nature of those elected to local government that they have knowledge, skills, and experience that might be of value to the Council, coupled with a strong sense of community service and a drive to fix problems and improve the well-being of the communities they represent. These attributes are to be welcomed and encouraged. We have no issue with elected members sharing their knowledge, experience, and connections with Council staff, where it is in the interests of the community to do so.

However, members of the Council are elected to govern, not manage. They must be conscious of the line between governance and management and be aware when they are crossing it. This is not just for the sake of the Council, but for their own sake. Elected members need to be aware at all times that their functions are limited to collective governance, and that none of them (including the Mayor) has any executive authority except in instances where Council specifically delegates that authority.

Elected members who overstep the line between governance and management risk not only undermining relationships within the Council, and the ability of the Council to account effectively to the community. They also risk personal liability for their actions.

Councillor Havill's conflicts of interest

Our fourth major concern relates to Councillor Havill's conflicts of interest.

Councillor Havill is a long-standing business associate of Edward Blakely, who is the Director and owner of Blakely Mining, one of the subcontractors for the work. Councillor Havill's brother was the driver of the bulldozer. Councillor Havill is also a part owner of Aratuna Freighters Limited, which is one of the main suppliers of fuel to companies on the West Coast, including Blakely Mining and MBD.

It is Councillor Havill who, along with the Mayor, made the call that emergency works were necessary and that the bulldozer operated by Blakely Mining was needed to do the work.

When these views were subsequently presented to the Council for discussion and approval, Councillor Havill declared a conflict of interest. Although Councillor Havill took part in the discussion, he did not take part in the vote. Despite declaring a conflict of interest and stepping aside from the decision, concerns have persisted that people close to him have benefited from contracts he effectively negotiated.

Allegations about conflicts of interest involving elected members of local authorities are a matter of particular concern to this Office because – aside from a general interest in matters relating to good governance and probity – the Auditor-General has a specific role in investigating concerns about financial conflicts of interest.

Financial conflicts of interest are governed by the Local Authorities (Members' Interests) Act 1968. Under that Act, an elected member who discusses or votes on a matter in which they have a financial interest, risks committing a criminal offence and, if convicted, is automatically disqualified from office. The Act also prohibits elected members from benefiting financially from contracts with their council, except in specific circumstances.

Part of our inquiry, therefore, required us to consider whether Councillor Havill had breached the Local Authorities (Members' Interests) Act and, if so, whether prosecution was warranted.

We have concluded that the nature of Councillor Havill's conflicts of interest in this case were not financial, and that he did not breach the Local Authorities (Members' Interests) Act. This is because the concept of a financial interest in this Act applies only where it can be shown that the elected member personally stands to lose or gain financially, either directly or indirectly (for example, through a business they own). We found no evidence in our inquiry that Councillor Havill stood to gain any personal financial advantage as a result of his involvement in the procurement process.

Nonetheless, Councillor Havill did have conflicts of interest of a non-financial nature as a result of people close to him standing to gain financially. This means that, even though he declared a conflict of interest, his close involvement in the procurement process remains a matter of concern.

As already explained, that concern has to do with the fact that Councillor Havill is a member of the Council's governing body, not its management or operational staff. Elected members are there to govern, not manage, and need to understand the difference and when they are crossing the line.

In Councillor Havill's case, however, respecting the line between governance and management was all the more important because of his connections with the companies involved and the concerns those connections would inevitably trigger. Those concerns were compounded by the fact that there was no form of competitive tender process, and that the contracts that were awarded simply recorded the terms Councillor Havill had negotiated. To all intents and purposes, Councillor Havill negotiated and entered into contracts with people he knew on behalf of the Council.

We accept that, in offering his expertise and business connections, Councillor Havill was genuinely motivated by a desire to act in the community's interests, and believed his solution for addressing a long-standing problem was the right one. However, that does not justify him involving himself in the way that he did.

In particular, we do not accept that it was necessary or appropriate for him to approach any of the contractors directly, or that Council staff could not have managed the procurement process without his personal involvement.

Councillor Havill's failure to recognise the concerns his involvement would inevitably trigger has caused concern within the community about the fairness of the Council's contracting processes, and led to speculation that the contracts that were awarded were awarded on the basis of personal connections, rather than on merit.

Whether these concerns are valid or fair to any of the companies and individuals involved is another matter, and to some extent, beside the point. For an entity exercising public power and spending public money, it is not enough for its decision-making processes to be fair. They must also be seen to be fair.

If a council wishes to retain the community's confidence, it must understand the importance not just of behaving fairly, but of being seen to behave fairly.

By failing to recognise and understand this important principle and the concerns his involvement would cause, Councillor Havill has unfortunately undermined the trust and confidence some members of the community have in their Council. He has also risked both his own reputation and that of the Council.