Auditor-General's overview

E ngā mana, e ngā reo, e ngā karangarangatanga maha o te motu, tēnā koutou.

The City Rail Link is a 3.45km twin-tunnel underground rail link that will be up to 42m below Auckland's city centre. It will transform Britomart station into a two-way through station. This will better connect the Auckland rail network and create New Zealand's first underground metropolitan rail service.

Auckland Transport expects the City Rail Link to double the number of Aucklanders living within 30 minutes' travel of the central city and improve transport around the city.

Auckland Transport prepared the business case for the City Rail Link in 2015. The Government and Auckland Council (the Council) worked together to establish the City Rail Link project (the CRL project) during 2016 and 2017. The CRL project's objectives include increasing economic productivity, a sustainable transport solution that provides for population growth, and a positive contribution to a liveable, vibrant, and safe city.

The CRL project is challenging. It is the country's largest and costliest transport infrastructure project ever. It involves digging under central Auckland, moving existing underground stormwater piping and other utilities, and disruptive above-ground activity. The CRL project also includes the building of new stations and redevelopment of existing stations so they can accommodate longer trains.

In July 2017, the Government established City Rail Link Limited (CRL Ltd), a special purpose Crown company, to deliver the CRL project. CRL Ltd's shareholders are the Crown (represented by the Ministers of Transport and Finance) and the Council. The Crown and the Council co-fund CRL Ltd and are also the CRL project's Sponsors.

So far, the Sponsors have committed to investing about $4.42 billion in CRL Ltd to deliver the CRL project. When they made that commitment, the Sponsors understood that there was a 50% chance that the CRL project would cost more. The Covid-19 pandemic has exacerbated this.

As well as the CRL project, Auckland Transport and KiwiRail Holdings Group (KiwiRail) are responsible for the wider network improvements needed to integrate the City Rail Link into the existing transport network in Auckland. These wider network improvements include new trains, removing level crossings, and the Wiri to Quay Park upgrade.

The budget for these wider network improvements is about $1.11 billion. This brings the current total estimated cost of the work to enable the City Rail Link to start passenger services to about $5.53 billion. These works will provide capacity for 27,000 passengers each hour during peak times.

Separate from the CRL project and the associated wider network improvements, Auckland Transport and KiwiRail have also signalled that, between now and 2036, additional investment of about $7.5 billion in the Auckland Rail Network Development Programme could enable up to 54,000 passengers to travel through the City Rail Link each hour during peak times.

In our work, we often identify poor governance as the reason why major projects have problems. Therefore, I wanted to provide Parliament and the public with assurance that the CRL project's governance was effective and likely to support its successful completion. I also wanted to provide observations on how central and local government have worked together to deliver significant infrastructure projects. These observations might be useful to other public organisations that are setting up similar projects.

What we found

Aspects of governance arrangements are working well, despite challenging circumstances

The governance arrangements have changed during the CRL project's different stages. Although these governance arrangements are complex, many aspects appear to be working well.

CRL Ltd's Board (the CRL Ltd Board) has a clear understanding of its mandate and authority. It has an appropriate mix of skills and operates well.

The CRL Ltd Board has shown that it can handle significant challenges, such as overseeing the establishment of an alliance to deliver the CRL project's main works. The CRL Ltd Board and management have also been agile in responding to challenges arising from the Covid-19 pandemic, which are expected to continue for some time.

However, even with effective governance and best efforts from all parties to deliver the CRL project as planned, it is likely that this project will exceed its current budget and take longer than originally planned.

CRL Ltd has publicly advised that it has a pending claim for additional costs from the Link Alliance, which is responsible for delivering the main works, for matters related to the Covid-19 pandemic. When I finalised my report, the CRL Board considered that it could not reliably estimate what the agreed amount of the claim would be. However, the CRL Board has acknowledged that the agreed claim could be significant.

I understand that the claim is expected to be resolved by the end of 2022.

When the claim has been settled, I expect CRL Ltd to provide the Sponsors advice on options for addressing the challenges to cost and time frames, and on the potential effects on the CRL project's intended benefits.

In the meantime, it is important that the CRL Board continues to regularly update the Sponsors on how the situation is developing so that there are no surprises and the Sponsors can factor these risks into wider investment decisions.

The Sponsors' officials have carried out some of their responsibilities well

We found that the Sponsors' officials (from the Council, the Ministry of Transport, and the Treasury) have carried out some of their responsibilities well. We found examples of them providing useful support in response to issues. For example, they supported efforts to secure priority funding for the wider network improvements to prevent delays to the CRL project.

Officials have recognised the need for specialist expertise on the CRL project and have contracted an external Assurance Manager for independent advice. However, my staff could not conclude from the documents they reviewed how well officials are responding to the Assurance Manager's advice or whether all critical issues had been addressed.

When this report was being finalised, the Sponsors' officials were working with CRL Ltd to improve the tracking of how recommendations were addressed. This is encouraging, but the work is happening much later than I would have expected.

The Sponsors and their officials assured us that they are appropriately informed about the CRL project and the wider network improvements. However, the quality of some reports provided to the Sponsors between mid-2019 and April 2021 was not at the level I would expect for a project of this scale and complexity. For example, reporting to the Sponsors on how well risks were being mitigated was not always adequate.

More recent reports that my staff reviewed were better. I encourage officials to sustain these improvements to ensure that there is clear and reliable information about the CRL project and the wider network improvements and about how risks to delivery are being mitigated.

Governance Boards need to be more involved in resolving issues with dependencies

The CRL Ltd Board is accountable for successfully completing the CRL project. However, it does not have authority over all the work needed to achieve this, such as the wider network improvements that Auckland Transport and KiwiRail are responsible for.

In 2019, the Delivery Partner Steering Committee was set up. The Committee is a forum for senior managers from five agencies to co-ordinate the works that the delivery partners (CRL Ltd, Auckland Transport, and KiwiRail) need to complete for the rail system to operate effectively on opening day.

However, I am not yet satisfied that there is an effective forum for the delivery partners' governing Boards to resolve issues that the Delivery Partners Steering Committee cannot.

In my view, as the CRL project moves into its next phase, there needs to be effective and timely processes that enable the delivery partners' governing Boards to help with resolving problems and take the "best for Auckland" approach that the Sponsors require.

Planning for benefits realisation needs to be prioritised

During this audit, my staff observed that there was confusion about which agency is responsible for planning, managing, and reporting progress in achieving the benefits of the CRL project in the context of the wider Auckland transport network. In my view, this is concerning for a project of this significance.

The City Rail Link's benefits need to be defined and quantified further, responsibilities need to be assigned, and suitable measures need to be agreed on.

Improvements are already under way

The recommendations we make in this report are intended to further strengthen the CRL project's governance arrangements. This will help ensure that the CRL project is successfully completed in conjunction with the wider network improvements. This will enable the City Rail Link to operate effectively from opening day and achieve its intended benefits over the long term.

I understand that the Ministry of Transport, the Treasury, and the Council have largely accepted our recommendations and have already started implementing them.

Throughout our audit, the Sponsors' officials and the delivery partners have worked to address our concerns. This includes completing the first stage of a comprehensive benefits realisation plan, clarifying responsibility for benefits management, agreeing to track the Assurance Manager's recommendations, and improved reporting to Sponsors. Together, these measures should strengthen the existing governance arrangements.

I thank CRL Ltd, the Council, Auckland Transport, KiwiRail, the Ministry of Transport, and the Treasury for their support and co-operation during our audit. Despite the considerable challenges these organisations face, including the continuing impacts of the Covid-19 pandemic, they supplied us with all the information that we asked for and made time available for answering our questions. I also thank Bruce McLean for his support of the audit team during fieldwork.

Nāku noa, nā

John Ryan
Controller and Auditor-General

21 June 2022