Part 4: The Sponsors' governance and oversight

Governance of the City Rail Link project.

4.1
In this Part, we discuss:

how the Sponsors' officials have carried out their duties;
how the Sponsors' officials have responded to advice from the Assurance Manager;
progress in managing benefits realisation;
how interdependencies are governed; and
reporting from the Sponsors' officials on the CRL project and the wider network improvements.

4.2
For the public to remain confident that CRL Ltd can complete the CRL project and achieve the CRL project's longer-term objectives, it is critical that the Sponsors provide suitable oversight and governance. Oversight of any issues with the wider network improvements required for Day 1 is necessary to avoid delays to the CRL project.

4.3
In accordance with its terms of reference, we expected that the Sponsors' Forum would effectively govern the Sponsors' investment in the City Rail Link so that the CRL project realises its intended benefits. We expected the Sponsors' Forum to proactively work with the delivery partners to resolve high-level issues affecting the CRL project and its dependencies, such as challenges with scope, budget, and time frames.

4.4
We expected the Joint Sponsors Team to effectively advise and support the Sponsors on governance, approvals and reviews, assurance and monitoring, and policy and integration matters.

Summary of findings

4.5
The Sponsors' officials have carried out some of their responsibilities well. For example, they reviewed CRL Ltd's proposal to adopt the alliance model and facilitated the Sponsors' approval of the proposal. The Sponsors' officials also supported efforts to secure priority funding for the wider network improvements required to bring the City Rail Link into operation.

4.6
The Sponsors' officials have recognised the need for specialist expertise on this work and have contracted an Assurance Manager to provide them with advice. However, we could not conclude whether the officials were addressing the Assurance Manager's recommendations well or whether critical issues have been addressed because the documentation was not adequate.

4.7
When we finalised this report, the Sponsors' officials were improving the way they track the Assurance Manager's recommendations and how they have addressed them. These improvements are important to ensure that the Sponsors can have confidence in the independent assurance process.

4.8
We also found that there was confusion about who is responsible for ensuring that the benefits of the City Rail Link are progressively realised until 2036. In our view, the benefits need to be better defined, updated, and quantified. In response to our concerns, Sponsors' officials have clarified responsibility for realising benefits and intend to complete a benefits realisation plan in early 2023.

4.9
In our view, there also needs to be a mechanism to enable the governing Boards of the delivery partners to have greater oversight of the CRL project's dependencies, support efficient joint decision-making, and resolve matters that the Delivery Partner Steering Committee cannot.

4.10
The Sponsors and their officials assured us that they are appropriately informed about the CRL project and the wider network improvements. However, we reviewed a selection of reports from mid-2019 to April 2021 and identified some areas for improvement.

4.11
More recent reports to the Minsters and the Council's Audit and Risk Committee were more comprehensive, included more analysis, and provided a clearer view on the CRL project's status and risks. We expect officials to sustain these improvements to ensure that there is a clear and reliable record on how well the risks from both the CRL project and the wider network improvements are being mitigated.

The Sponsors' officials have carried out some responsibilities well

4.12
The Sponsors' officials have a structure that enables them to have oversight of the CRL project and its dependencies, support parties to achieve their objectives, and facilitate co-ordination between agencies and between the Sponsors.

4.13
The Joint Sponsors Team's main role is to provide the Sponsors with enough information for all matters needing their review, approval, or consent.

4.14
We found that the Sponsors' officials carried out their responsibilities for the Sponsors' approvals effectively (such as approving CRL Ltd's adoption of an alliance model in 2018). Officials have also provided the Sponsors with recommendations on the conditions that should be attached to approvals.

4.15
The Sponsors' officials routinely carry out statutory monitoring functions in relation to CRL Ltd, including providing advice to the Minister of Transport to prepare his annual letter of expectations to the Board's chairperson.²⁰ Officials work together to incorporate advice from the other Sponsors in that letter.

4.16
The Sponsors' officials also supported the Sponsors to appoint members to the Board. This included providing advice on how to refresh the CRL Ltd Board without losing continuity and skills. Officials also provided advice on how to respond to the recommendations in the report on the Board's performance, including advice on amending CRL Ltd's constitution to allow an additional director to be appointed.

4.17
We found many examples of the Sponsors' officials supporting initiatives to benefit the CRL project. For example, the Sponsors' officials:

worked with the Sponsors and CRL Ltd to increase the Sponsors' committed investment in the CRL project in 2019 to allow for increased scope, construction costs, and contingency in the CRL project's budget;
supported a joint proposal from Auckland Transport and KiwiRail asking that decision-makers prioritise funding the wider network improvements through the Auckland Transport Alignment Project and the New Zealand Upgrade Programme to avoid delays to the CRL project;
worked with CRL Ltd and the Ministry of Business, Innovation and Employment to mitigate the effects of the Covid-19 pandemic on the CRL project's programme, supplies, and workforce, including getting approval for some construction to continue during the Alert Level 4 lockdown; and
worked with the Minister of Transport and the Council on the policy needed to set up a Business Hardship Programme (because the Albert Street works took longer than planned) and, later, the Target Hardship Fund, which the Minister of Transport and the Mayor of Auckland announced in September 2021.²¹

Sponsors' officials need better systems for managing advice from assurance reviews

4.18
The Joint Sponsors Team gets a monthly report from CRL Ltd on the status of its delivery programme. CRL Ltd also provides quarterly reports on progress against its Statement of Performance Expectations, including its progress against delivery milestones. CRL Ltd's reports that go to the Joint Sponsors Team use the most recent information that the CRL Ltd Board has been provided with.

4.19
The Sponsors' officials told us that CRL Ltd's reports are useful. For example, the reports have highlighted risks with the Link Alliance and how these are being managed through the Project Alliance Board and the Project Alliance Agreement.

4.20
The Assurance Manager reviews and provides separate advice to the Joint Sponsors Team on CRL Ltd's reports. That advice is informed by reviewing other documents and talking to CRL Ltd's staff.

4.21
The reports that the Assurance Manager provides to the Joint Sponsors Team include recommendations for action, such as officials asking CRL Ltd for more information or to discuss certain matters.

4.22
The Sponsors' Representative and other members of the Joint Sponsors Team or the Sponsors' Forum then meet with CRL Ltd's senior management to discuss the reports and any other relevant information about the CRL project. The Assurance Manager usually attends.

4.23
Aside from this, it is not clear to us how the Joint Sponsors Team uses the information it is provided with. From the documents provided to us, we could not consistently see:

whether the Joint Sponsors Team accepted the Assurance Manager's recommendations;
what actions were taken in response to the Assurance Manager's recommendations and when they were completed;
how CRL Ltd and the Assurance Manager's reports influenced the Sponsors' officials' meetings with CRL Ltd's management or the information that the Sponsors' officials provided to the Sponsors; or
whether the Joint Sponsors Team referred any matters to the Sponsors' Forum or the Sponsors.

4.24
Because there was not adequate documentation, we could not conclude whether the Sponsors' officials are addressing the Assurance Manager's recommendations well or whether critical issues have been addressed.

4.25
In our view, the Sponsors' officials need to have a more systematic approach to addressing the Assurance Manager's recommendations and agreed improvement actions. This should involve documenting:

whether recommendations have been accepted or rejected;
who has been assigned responsibility for an action;
a deadline for action;
progress in addressing the response to each recommendation that needs action; and
when each action has been completed.

4.26
The Sponsors' officials accept the need to provide greater transparency of how they are carrying out their oversight role. They are working with CRL Ltd to work out an effective and efficient way of improving their systems. In our view, this is encouraging but very late.

4.27
It is important that the Sponsors' officials prioritise these improvements so that they can report to the Sponsors how they have addressed the Assurance Manager's advice and recommendations. This will give the Sponsors confidence in the independent assurance process and enable officials to provide advice on how well CRL Ltd is delivering the CRL project.

Recommendation 1
To provide greater transparency of how well they are carrying out their oversight role, we recommend that the Sponsors' Forum and Joint Sponsors Team prioritise improvements to the way they manage the Assurance Manager's recommendations.

Ongoing benefits management needs to be considered now

4.28
In our 2020 report Inland Revenue Department: Benefits management for the Business Transformation Programme, we said:

Benefits management needs an ongoing commitment for the duration of an investment. It should be integrated into an organisation's programme planning, strategic planning, and performance management and reporting systems. …

Effective benefits management helps to ensure that benefits are ultimately realised. It should also support an organisation to continually improve and implement lessons learned.

4.29
Although the comments in that report were about a single organisation, it is even more important to be clear about responsibility for managing benefits when multiple agencies contribute to realising those benefits over many years. This is the case for the City Rail Link.

4.30
In our view, it is critically important that the Sponsors' officials understand the processes and expectations for realising the benefits from the City Rail Link. This includes:

having plans to manage and govern benefits appropriately; and
being clear about which agency will be responsible for co-ordinating reporting on benefits over the long term.

4.31
We expected the intended benefits from the City Rail Link to be clearly defined. Clearly defined benefits with measurable indicators are needed to:

help with investment decision-making during the CRL project's design and construction;
weigh up potential changes to the CRL project's scope (against time and cost) that can better achieve the business case's objectives; and
support transparency and accountability for the return on the Sponsors' investment when the CRL project is completed and from the City Rail Link's operation to 2036.

4.32
The Sponsors' Forum's terms of reference (see paragraph 2.66) make it clear that its purpose is to govern the Sponsors' investment in the City Rail Link so that the CRL project realises the intended benefits.

4.33
However, we found that there was confusion over who is responsible for governing benefits. In our view, this is not acceptable for what will be a significant programme of works over many years.

4.34
We consider that the business case does not sufficiently define the City Rail Link's intended benefits. To effectively manage and realise the benefits, work on further defining them is needed. They also need to be updated.

4.35
The benefits realisation plan should include a benefits mapping framework to show the links between the CRL project's scope and the intended benefits. This would ensure transparency and help agencies manage owning, measuring, and realising benefits.

4.36
In response to our concerns, the Sponsors' officials told us that they have started reassessing how the intended benefits from the investment in the City Rail Link will be realised and how this will be overseen until 2036.

4.37
The Ministry of Transport is leading this work in consultation with the Council, Auckland Transport, CRL Ltd, KiwiRail, and the Treasury. The Ministry aims to use existing forums set up for the Auckland Transport Alignment Project to co-ordinate and report on progress.

4.38
The agencies intend to prepare a benefits realisation plan that will define and quantify targets for the City Rail Link's economic, social, and environmental benefits.

4.39
Agencies have made progress in preparing a benefits realisation plan, which they intend to complete in two phases. The first phase of the benefits realisation plan covers the business case's core benefits.

4.40
The Ministry of Transport, the Council, Auckland Transport, CRL Ltd, and KiwiRail have agreed the first phase of the benefits realisation plan, which was completed in May 2022. It sets out the accountabilities for achieving benefits and for monitoring the work that agencies need to do. Because the plan has only recently been completed, we have not assessed it.

4.41
The second phase of the benefits realisation plan involves incorporating the:

work that Eke Panuku and Kāinga Ora are doing together to realise urban development opportunities near the Mount Eden station; and
outcome of the business case that KiwiRail is preparing for the Auckland Rail Network Development Programme.

4.42
Agencies intend to complete and agree the second phase of the benefits realisation plan by February 2023.

4.43
When fully complete, the benefits realisation plan is expected to address all of the intended benefits set out in the business case.

4.44
The final benefits realisation plan will be provided to the Auckland Transport Alignment Project Governance Group. The agencies consider that, within the context of the whole Auckland transport network, the Auckland Transport Alignment Project Governance Group is the suitable forum to have oversight for realising the intended benefits of the City Rail Link until 2036.

4.45
The members of the Auckland Transport Alignment Project Governance Group are the:

Secretary for Transport (co-chairperson);
Chief Executive of the Council (co-chairperson);
Deputy Secretary to the Treasury;
Deputy Public Service Commissioner for Auckland; and
Chief Executives of Auckland Transport, KiwiRail, and Waka Kotahi.

4.46
When put in place, these arrangements should contribute to improved benefits management, including supporting decision-making on the additional investment associated with steps 2 and 3 for the City Rail Link.

4.47
Multiple agencies are responsible for achieving the long-term benefits of the City Rail Link. Ideally, these agencies would have already confirmed a benefits realisation plan for the City Rail Link and accountabilities and reporting mechanisms would already be in place.

4.48
Preparing a benefits realisation plan early would have helped to clarify which works are critical to the delivery of the benefits in the business case. It would have also made clear which benefits each agency will contribute to. It would have required all agencies to have plans for realising the benefits and to measure and report on progress.

4.49
We consider that priority should be given to putting in place effective oversight for realising the City Rail Link's intended benefits.

Recommendation 2
We recommend that the Sponsors of the City Rail Link project ensure that officials prioritise completing an agreed comprehensive benefits realisation plan that: clearly defines and quantifies the benefits expected from the City Rail Link, with measures that are specific, measurable, and realistic; assigns responsibility for managing benefits; and assigns accountability for co-ordinating reporting on realising benefits over time.

Recommendation 2

We recommend that the Sponsors of the City Rail Link project ensure that officials prioritise completing an agreed comprehensive benefits realisation plan that:

clearly defines and quantifies the benefits expected from the City Rail Link, with measures that are specific, measurable, and realistic;
assigns responsibility for managing benefits; and
assigns accountability for co-ordinating reporting on realising benefits over time.

Boards need to be more involved in resolving issues with dependencies

4.50
The CRL Ltd Board is accountable for delivering a railway capable of commercial operation for immediate public use on Day 1.

4.51
However, the CRL Ltd Board does not have authority over all the works that need completing for Day 1 to succeed. This is because the Boards of Auckland Transport and KiwiRail are responsible for the wider network improvements.

4.52
For Day 1 to succeed, the delivery partners need to work together to align and co-ordinate the design, construction, testing, and commissioning of their respective works.

4.53
To support this, we expected:

opportunities for Board-level discussions between the delivery partners so that governors can be assured that they are all suitably resourced to deliver their respective works; and
an escalation pathway for those Boards to make decisions on any issues that the Delivery Partner Steering Committee could not resolve or that might need joint action with the Sponsors.

4.54
In 2019, the Delivery Partner Steering Committee was set up as a forum for senior managers to co-ordinate their works. However, we could not identify a forum where the delivery partners' Boards can resolve issues about dependencies that the Delivery Partner Steering Committee itself could not.

4.55
We found that some issues during the design phase put pressure on the CRL project because the Delivery Partner Steering Committee could not resolve problems efficiently. For example, in May 2021, the Assurance Manager advised the Joint Sponsors Team that it was unclear which agency should be responsible for funding remedial works at Britomart station. At that time, procedures for resolving these types of situations were not clear.

4.56
To avoid delays to the CRL project, CRL Ltd agreed to fund works from the CRL project's contingency even though those works were considered outside the CRL project's scope and budget.

4.57
We recognise that the costs involved were not significant in the context of the CRL project's total costs and that the risk of delay was not significant to the critical path. However, in our view, these sorts of issues were predictable and could have been resolved earlier if there were clearly understood ways of resolving such issues and an appropriate escalation path.

4.58
The scope and funding for the CRL project were first confirmed in 2016 and 2017. Then or later, the delivery partners' Boards could have agreed on:

arrangements to confirm that Auckland Transport and KiwiRail had properly budgeted for and planned to deliver any remedial works before CRL Ltd needed to begin work on the asset; and
a methodology for deciding which agency would pay for costs when responsibilities are not clear.

4.59
In response to our concerns about governing dependencies between the CRL project and the wider network improvements, the Sponsors' officials told us that the Auckland Transport Alignment Project Governance Group is now responsible for reporting on whether the City Rail Link is ready for commercial operation and public use on Day 1. The Auckland Transport Alignment Project Governance Group will do this in co-ordination with the Delivery Partner Steering Committee.

4.60
This is because most of the agencies represented on both groups (except for CRL Ltd) have statutory powers to make decisions that affect the transport network. The agencies will need to exercise these powers and commit funding to realise the intended benefits.

4.61
The Sponsors' officials also told us that preparing for Day 1 is the main focus for the Delivery Partner Steering Committee.

4.62
Figure 4 shows the governance arrangements and the revised reporting process.

Figure 4
Revised governance arrangements for reporting on whether the City Rail Link is ready for commercial operation on Day 1

The Auckland Transport Alignment Project Steering Group is responsible for monitoring all projects funded through the Auckland Transport Alignment Project, but we show only its relationship to the CRL project.

Figure 4 is a chart showing the revised governance arrangements for reporting on whether the City Rail Link is ready for commercial operation on Day 1.

4.63
Although we are encouraged by the acknowledgement from agencies that stronger co-ordination is required, this does not fully meet the expectations that we set out in paragraph 4.53.

4.64
Our main concern with this approach is that the delivery partners' Boards are not included in decision-making about works that they are responsible for. No-one from the delivery partners' Boards is a member of the Delivery Partner Steering Committee, the Auckland Transport Alignment Project Steering Group, or the Auckland Transport Alignment Project Governance Group.

4.65
In our view, governance will need to play an increasing role in helping address risks and issues about dependencies as the CRL project's testing and commissioning phase progresses. The Sponsors have already recognised the potential risks involved because they amended CRL Ltd's constitution to allow the appointment of an additional director to the CRL Ltd Board who has strong experience in rail systems and integration.

4.66
We are concerned that any significant problems that the testing and commissioning phase uncovers could severely test the effectiveness and efficiency of the current governance arrangements. For example, decisions could be made too slowly to prevent further problems, such as delays and increased costs.

4.67
We consider that there needs to be greater information sharing and alignment between the Boards so that they are aware of, and prepared for, problems of mutual concern and can react to issues when they arise.

4.68
In our view, a forum needs to be established (or an existing forum repurposed) so that the delivery partners' Boards have greater oversight of the CRL project's dependencies and can resolve matters that the Delivery Partner Steering Committee cannot.

Recommendation 3
We recommend that the Sponsors of the City Rail Link project review the governance arrangements to ensure that there is an appropriate mechanism for Boards of City Rail Link Limited, Auckland Transport, and KiwiRail Holdings Group to have collective oversight of project dependencies and support the Delivery Partners Steering Committee with joint decision-making where appropriate.

4.69
Agencies told us that they accept the need for the delivery partners' Boards to work more closely together.

Reporting to the Sponsors has improved

4.70
One of the eight elements of good governance is "Be clear about accountabilities and transparent about performance against them" (see Appendix). When applied consistently, transparency can improve governance, promote accountability, and gain the confidence of stakeholders.

4.71
Given the CRL project and the wider network improvements' scale, complexity, cost, and importance, we expected a clear and reliable record of what information was provided to the Sponsors and when it was provided.

4.72
Currently, there is no joint reporting on the CRL project's status to all of the Sponsors. Instead, the Crown's officials report to the Ministers of Finance and Transport, and the Council's officials report separately to the Council.

4.73
A substantial amount of reporting is regularly provided to Ministers about the CRL project. Officials also told us that they consider the frequency and level of detail in reporting to the Ministers of Transport and Finance provide appropriate information on the CRL project's budget, scope, and time frame.

4.74
We looked at a selection of reports provided between mid-2019 and April 2021 and identified some improvements that could be made. For example:

Although the status of the CRL project was regularly reported on, the status of the wider network improvements was not. The Sponsors need this reporting so they can have assurance that all the works needed for Day 1 are co-ordinated.
Reporting to the Sponsors on how well the risks to them were being mitigated has not always been adequate.

4.75
The reports and advice to Ministers from mid-2019 until April 2021 that we reviewed did not always indicate the significance or consequences of the information provided.

4.76
For example, Ministers were told in August 2020 that the original works planned for Henderson would not be procured while Auckland Transport explored alternatives. However, the report did not discuss the significance of this, such as whether the Henderson works:

were critical for successfully completing the CRL project; or
what the effect would be on expected benefits at Day 1 if the planned turnback at Henderson is not completed by then.²²

4.77
The Council's Audit and Risk Committee oversees the Council's interest in the CRL project on behalf of the Council's Governing body.²³ The Committee is meant to receive reports every six months. However, the documentation we were provided showed that the Committee has received only three reports between January 2020 and May 2022.

4.78
The Sponsors and their officials assured us that they are appropriately informed about the CRL project and the wider network improvements.

4.79
We saw evidence that officials have asked CRL Ltd to include further information in their regular reports. For example, officials requested additional information from CRL Ltd on the impact of the Covid-19 pandemic on the main works so they could keep Sponsors better informed.

4.80
Later reports to Ministers and the Council's Audit and Risk Committee (from July and August 2021) that we reviewed were more comprehensive, included more analysis, and provided a clearer view on the CRL project's status and risks.

4.81
We acknowledge the improvements made to reporting. We expect officials to sustain these improvements to ensure that there is a clear and reliable record on how well risks from both the CRL project and the wider network improvements are being mitigated.

Recommendation 4
We recommend that officials from Auckland Council, the Ministry of Transport, and the Treasury ensure that they sustain improvements in reporting to the Sponsors of the City Rail Link project to promote accountability, improve governance, and gain the confidence of stakeholders.

20: Ministers use letters of expectations to inform the Boards of Crown entities about their expectations. Boards are expected to reflect the Minister's expectations in their organisation's corporate documents.

21: CRL Ltd managed the Business Hardship Programme and also manages the Target Hardship Fund on behalf of the Sponsors.

22: As of June 2022, decisions have yet to be made about the scope and design of the Henderson works and which organisation will deliver them.

23: Council officials also provide information about the CRL project directly to the Council's Governing body and the Finance and Performance Committee.