Auditor-General's overview

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

The 2020 Budget Policy Statement published on 11 December 2019 stated that the Government was planning a significant capital investment package to:

…build clarity around our future capital pipeline, speed up the transition to a low emissions economy, support business confidence, and move towards a more productive, sustainable and inclusive economy.

On 29 January 2020, the Government announced a $12 billion investment in infrastructure. The New Zealand Upgrade Programme (the NZUP) would fund transport, hospitals, schools, decarbonisation initiatives, and telecommunications infrastructure projects. The Prime Minister described it as “a once-in-a-lifetime opportunity to invest in New Zealand”.

On 1 April 2020, shortly after the start of New Zealand’s first Alert Level 4 lockdown, the Government announced that, to reduce the economic effects of the Covid-19 pandemic, it had asked a group of industry leaders to seek out infrastructure projects that were “shovel ready” – in other words, ready (or near ready) to start as soon as the construction industry resumed normal activity.

This $3 billion fund, which we refer to as the Shovel-Ready Programme (the SRP) in this report, focused on projects that would immediately support jobs and provide income, and that could begin construction within the next 12 months. The Government sought applications from both public and private organisations for projects to be included in the SRP.

For both programmes, Ministers decided to act quickly in anticipation of deteriorating economic conditions.

I decided to look at how the Government made these infrastructure investment decisions because of the speed of the decision-making, the scale of the investments, and their long-term and potentially inter-generational impacts.

When my staff started this work, we intended to focus primarily on the role public organisations played in supporting the investment decisions. However, as our work progressed, the significance of the role that Ministers played in the process became clearer.

What we found

My audit focused on the processes that were used to make decisions about which projects to fund. We did not assess, and I do not comment on, the merits of the selected projects.

The Cabinet-mandated Investment Management System is meant to guide the Government’s investment decision-making. The Investment Management System is a mix of policies, processes, rules, requirements, and expectations that are described in various documents and summarised on the Treasury’s website.

The Investment Management System seeks to optimise value from new and existing investments and assets for current and future generations of New Zealanders. The requirements and guidance that make up the Investment Management System are there for good reasons, and they have informed our expectations of the investment decision-making process followed for the NZUP and SRP.

These investments were a response to significant economic uncertainty

During the second half of 2019, the Government received advice about deteriorating economic conditions and whether some form of government intervention would be needed if those conditions worsened further.

In early 2020, the Covid-19 pandemic emerged, and the Government anticipated significant negative economic impacts. In the months and years that followed, the Government announced a range of significant investments to support individuals, families, and businesses to manage the effects of the Covid-19 pandemic on their livelihoods.

In both situations, the Government felt that, given the uncertainty, it needed to act quickly to strengthen economic conditions. It also considered that it needed to signal the plan as soon as possible to shore up economic confidence.

Officials worked hard to meet expectations and provided advice about the risks

Both the NZUP and the SRP were developed rapidly. The process to identify and announce funding for NZUP projects took only a few months. Setting up the application process for the SRP took only weeks.

For the NZUP, agencies were given high-level direction and expected to quickly provide lists of projects that Ministers could announce. They worked hard to provide as much information as they could given the time constraints.

For the SRP, this was at the same time as officials were working in difficult and constrained circumstances to support the Government and the public during the Covid-19 pandemic.

At several points, officials advised Ministers of risks to value for money for both the NZUP and the SRP. The New Zealand Infrastructure Commission (Te Waihanga) told the Government that “large scale infrastructure projects are not effective mechanisms for economic stimulus due to the time needed for planning, design and procurement”.

Te Waihanga warned of several constraints associated with infrastructure. It also said that accelerated projects are not without risks and could lead to increased costs and related inefficiencies.

For the transport projects in the NZUP, officials advised Ministers that certain factors – such as capacity in the construction sector – meant that “there is a real risk of cost overruns, both at a project and package level, as well as delays to projects”. Ministers decided to proceed with the transport projects, which were announced on 29 January 2020.

The Ministry of Health and the Treasury jointly advised Ministers that many of the proposed health projects under consideration for the NZUP were not ready to be announced. Treasury officials said that, “due to the time and information available”, they had “low confidence” that the proposed projects for investment would be able to be implemented quickly, in line with Ministers’ objectives.

On 29 January 2020, about one week after this advice was provided, the Minister of Health and Associate Minister of Health publicly announced several health projects. These included some projects that officials had advised were not ready to be announced.

Ministers did not have enough information to be sure that decisions supported value for money

Beyond the Government’s broad intention for NZUP to “build clarity around our future capital pipeline, speed up the transition to a low emissions economy, support business confidence, and move towards a more productive, sustainable and inclusive economy”, my staff could not identify specific investment criteria to assist agencies in identifying appropriate projects to be considered for funding.

Agencies developed investment options for Ministers within extremely tight time frames. It is not clear whether they had an opportunity to adequately consider priorities, achievability, value for money, interdependencies, or other considerations – such as regional impacts or impacts for Māori, Pasifika, or other communities. My staff saw very little information about these considerations in the NZUP documentation that they were provided with.

Ministers made decisions to progress some NZUP projects even though those projects were not fully scoped or planned. Full business cases were not always available or up to date even when the project’s planning was more advanced, such as for transport projects that were already part of the National Land Transport Programme.

Some of the NZUP decisions caught key stakeholders by surprise. Auckland Transport and Te Waihanga both told us that they learned about the NZUP through media coverage. Auckland Transport was not asked for information about, or business cases for, projects that it was responsible for.

More information about projects that sought funding from the SRP was provided to Ministers making decisions. Crown Infrastructure Partners, the public organisation responsible for administering the SRP, set up a process quickly which started well.

An Infrastructure Reference Group was formed to make recommendations to Ministers. It drew on a wide range of expertise at various points to inform assessments of whether applications were eligible. There were clear investment criteria for determining eligibility. Once it was determined, Ministers’ offices and officials refined the list of eligible projects.

However, as with the NZUP, Ministers had limited information about whether SRP projects were aligned with government strategies or whether they represented value for money. When Crown Infrastructure Partners and the Infrastructure Reference Group presented a longlist of eligible projects to Ministers, they were transparent about the limitations of their advice.

During the process of longlisting, shortlisting, and Ministers making final decisions about projects, many changes were made to the list of projects under consideration. There were frequent discussions between Ministers’ offices and officials during this time, and some projects were added from outside of the Infrastructure Reference Group process.

My staff found it difficult to determine how or why these changes were made. A lack of documentation about this part of the process meant that my staff were unable to establish whether new projects were assessed consistently, fairly, or on a similar basis to the work that the Infrastructure Reference Group carried out.

In my view, to support transparency and accountability when spending public money, decision-makers are responsible for ensuring that there are adequate records of how and why decisions were made.

The government carried out due diligence after announcements were made

When SRP projects were announced, it was clear that a subsequent due diligence process was expected to be carried out before funding would be confirmed and released to a project. This was signalled in press releases.

There was not the same clarity about subsequent due diligence when the NZUP projects were announced. This was despite many projects that were announced having limited business cases – or, in some instances, no business case – available.

By mid-2020, Ministers decided to take steps to strengthen the risk management and oversight of the NZUP transport investments. An Oversight Group of officials was set up to provide programme-level assurance and regular reporting to Ministers.

The Oversight Group identified that the original transport component of the programme could not be delivered within the allocated funding of $6.8 billion. On 31 May 2021, Cabinet approved additional Crown funding of $1.9 billion. This would fund agreed projects at their new cost estimates and provide a contingency fund for transport projects in the NZUP.

The Implementation Unit in the Department of the Prime Minister and Cabinet also carried out work to provide some assurance about aspects of both programmes. It has reported on work that agencies are doing to strengthen programme governance, monitoring, and oversight for NZUP transport projects, and it has provided a progress update on the SRP.

It is not clear how Parliament and the public will know whether this money was well spent

When my staff carried out their work, the Treasury was required to report periodically on the performance of all significant investments that have had or that require Cabinet consideration. Similarly, agencies were required to report on their investment intentions and performance to the Treasury.

Crown Infrastructure Partners co-ordinates regular public reporting about projects in the SRP. This provides a good level of information about the projects in the programme and spending in the programme to date.

The Treasury told us that, from November 2023, it will be making its quarterly reports on medium and high-risk investments to the Minister of Finance available to Cabinet and the reports will be published on the Treasury’s website.

Although some information on the progress of the NZUP-funded transport projects is reported publicly, no public reporting for the entire programme is available. This makes it difficult for Parliament and the public to understand the full scope of the programme and what is being delivered for the investment that has been made.

What we concluded

These decisions were made in challenging circumstances.

Ministers told us that they had to act urgently to strengthen economic conditions both before, and in the wake of, the Covid-19 pandemic. The need for early announcements to provide confidence to the public appears to have influenced how quickly these processes were carried out.

I accept that in some circumstances decisions need to be made quickly and processes might need to be adapted. However, careful consideration should be given to ensuring that trade-offs between good process and speed are proportionate to the scale of investment and risk. The advice agencies gave to Ministers was consistent with this approach.

In my view, the scale of these investments, the limited information available to Ministers, and the multi-generational impact of the investments warranted more rigour before the NZUP announcements were made.

The SRP was a largely well-run process, and there is good reporting on the programme’s delivery. However, the process was let down by the absence of clear records and a rationale of how and why some decisions were made after the Infrastructure Reference Group provided its report to Ministers.

I have made similar observations about aspects of the Strategic Tourism Assets Protection Programme, the Cost of Living Payment, the Provincial Growth Fund, and – most recently – the reprioritisation of the Provincial Growth Fund. It concerns me that significant spending of public money continues to occur without appropriate processes for ensuring value for money and transparent decision-making.

Ministers told us that NZUP decisions were made “in principle”, subject to business cases being prepared and due diligence processes being completed. They subsequently directed officials to gain more assurance about projects and to strengthen monitoring and oversight.

Costs for some NZUP projects have increased significantly. Some NZUP projects have been delayed or rescoped. Some SRP projects have also been discontinued.

Although the subsequent steps the Ministers took to strengthen oversight are positive, that work has also highlighted that even good monitoring and oversight cannot fully mitigate the value-for-money risks of investment decisions made with limited information.

Although the briefings, Cabinet papers, and minutes we were provided with record the final decisions made, there are not adequate records to enable proper scrutiny for some aspects of these processes, including why advice from officials was not followed, how risks were managed, and the funding priority given to some projects and sectors.

Ministers have the authority to make significant decisions. In my view, this power comes with an obligation to Parliament and the public to be transparent about how and why they made those decisions and whether those investments deliver what was intended.

A lack of transparency and documentation about how and why decision-makers made significant decisions can also create the perception that processes lack integrity. In a country that prides itself on the integrity of its public sector, we should all be concerned about this matter.

Infrastructure projects are complex and challenging. In my view, Parliament and the public have a right to expect more for spending of this scale – what the Prime Minister had called “a once-in-a-lifetime opportunity to invest in New Zealand”.

What I recommend

I have made three recommendations aimed at supporting improved decision-making and accountability for decisions.

I recommend that the Treasury ensure that there is regular public reporting on the progress of all significant investments that have had or that require Cabinet-level consideration, including NZUP projects. In my view, this is critically important so that Parliament and the public can form a view on whether those investments are delivering value and so that the government can be held accountable for the decisions it makes.

I am pleased to see that the Treasury has recently prepared new guidance on expedited decision-making. This guidance is intended for situations where investment decisions might need to be made more quickly than usual – such as during a crisis.

This guidance was not available when the NZUP and SRP investment decisions were made but should assist future decision-making in these types of circumstances. This is a positive initiative.

I have also recommended that the Treasury seek feedback from relevant agencies on how useful they find the Treasury’s guidance on expediting decision-making and regularly review that guidance so that it remains fit for purpose.

This performance audit has raised yet again the importance of clear and adequate investment criteria and appropriate documentation of decision-making processes, including when setting up contestable funds. For this reason, I have also recommended that the Treasury, in its role as steward of the public finance system, consider whether the Investment Management System should include minimum requirements and guidance for setting up and running contestable funding processes.

Final comments

This review has taken longer to finalise than we initially planned. This is because my Office has prioritised other work looking at the Government’s response to the Covid-19 pandemic. This extended time has shown that both programmes have made some good progress with delivering projects. However, it has also shown that some of the risks that officials highlighted to Ministers have been realised.

I remain interested in the performance of the NZUP and SRP, and I will likely carry out further work to understand the progress of these significant investments in infrastructure.

I thank the many officials who engaged with my Office during this work, including past Ministers, for their co-operation with my review.

Nāku noa, nā

John Ryan
Controller and Auditor-General | Tumuaki o te Mana Arotake

7 December 2023