Part 1: Introduction

Making infrastructure investment decisions quickly.

1.1
Establishing, managing, and maintaining infrastructure is complex and expensive. A wide range of organisations and individuals are involved in planning, building, funding, and operating New Zealand’s publicly owned infrastructure.

1.2
The state of New Zealand’s infrastructure is poor compared to similar countries.1 It is widely acknowledged that governments have underinvested in infrastructure over many decades. The Treasury’s 2022 Investment Statement puts New Zealand’s combined historical and future infrastructure gap at $210 billion during the next 30 years.2

1.3
In recent years, the Government announced substantial and wide-ranging investment in infrastructure. This included two significant infrastructure investment programmes: the New Zealand Upgrade Programme (NZUP) and what we have termed the Shovel-Ready Programme (SRP).3 Together, these programmes represent more than $15 billion of direct government investment. The SRP also involved significant co-funding from applicants.

1.4
Both programmes were designed to stimulate economic activity at a time when the Government was expecting economic conditions to deteriorate. Both the NZUP and the SRP were developed rapidly, and initial decisions about which infrastructure projects would be included and receive funding were made quickly.

1.5
In late 2019, the Treasury provided advice to the Minister of Finance that the economic and fiscal outlook had weakened because of slower global growth and increased business investment uncertainty. The Treasury advised that fiscal stimulus could support the economy through a period of anticipated weaker growth rates.

1.6
When the Government released the 2020 Budget Policy Statement in December 2019, it signalled its intention to invest an additional $12 billion in building a more productive, sustainable, and inclusive economy. It said that this new investment would take capital spending in New Zealand to the highest level in more than 20 years.

1.7
In late January 2020, the Government announced that it would invest this $12 billion in infrastructure as part of the NZUP. This included a $6.8 billion investment in transport and other investments in hospitals, schools, decarbonisation, and telecommunications.

1.8
In a press release dated 29 January 2020, the Prime Minister said that the programme was a “once-in-a-lifetime opportunity to invest in New Zealand – modernising our infrastructure, preparing for climate change and helping grow the economy”.

1.9
By March 2020, Covid-19 had arrived in New Zealand and the Government was anticipating 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.

1.10
The Government also considered the impact that the Covid-19 pandemic would have on the construction sector. On 1 April 2020, the Ministers for Infrastructure and Economic Development announced that, to reduce the economic impact of the pandemic, the Government had asked a group of industry leaders to seek out infrastructure projects that would be ready to start as soon as the construction industry resumed normal activity.

1.11
The Government allocated $3 billion to fund these projects. The SRP was targeted towards infrastructure investments that would immediately stimulate the construction industry, its workforce, and the economy. The Government sought applications from both public and private organisations for projects to be included in the SRP.

Why we did this audit

1.12
Any spending of public money should deliver good value for New Zealanders. Investment of the scale associated with the NZUP and the SRP has significant opportunity cost and, given the increased borrowing by the Government to fund these types of investments, these decisions could affect generations of New Zealanders to come.

1.13
It is reasonable for Parliament and the public to expect investment decisions to follow a fair, transparent, and robust process, be based on sound advice, and support value for money.

1.14
Ministers have broad discretion to make investment decisions. However, they must also be accountable for the decisions they make. In our view, this means that the basis for their decision-making should be transparent.

1.15
For Parliament and the public to have confidence in the decisions that are made on their behalf, they must be able to understand the rationale for the investment, how much has been invested, what purpose it has been invested for, what benefits are expected to be delivered, and whether those benefits have been realised.

1.16
The Investment Management System usually guides government decision-making about significant investments. The Investment Management System is a Cabinet-mandated 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.

1.17
We carried out this audit to understand how consistent the decision-making processes for investments in the NZUP and the SRP were with the Government’s guidelines and the public’s expectations that public money is well managed.

1.18
We chose these two programmes because of the significance of these investments, because of the level of public interest in them, and because they were developed quickly. We were interested in how agencies and Ministers navigated the requirements of the Investment Management System in these circumstances and what lessons could be learned.

How we carried out this audit

1.19
We analysed a large amount of documentation and spoke with people from a range of public organisations and other central government, local government, and non-government stakeholders. The documentation we analysed included Cabinet papers, Ministerial briefings, project assessment reports, assessment and process guidance, email correspondence between officials, and publicly available information on both investment programmes.

1.20
However, there were significant gaps in documentation. For the NZUP, there was a lack of documentation about the criteria used to allocate funding between sectors. For the SRP, there was a lack of information on how, why, or when certain projects were introduced into the process and prioritised.

1.21
Interviews with a wide range of officials and stakeholders helped us to understand how decisions were made and some of what took place. The people we spoke with included staff from:

  • the Treasury;
  • the Ministry of Business, Innovation and Employment (MBIE);
  • Crown Infrastructure Partners;
  • the Ministry of Transport;
  • the New Zealand Transport Agency (Waka Kotahi);
  • the Ministry of Health;
  • the Ministry of Education;
  • the New Zealand Infrastructure Commission (Te Waihanga);
  • KiwiRail;
  • the Department of the Prime Minister and Cabinet;
  • the Energy Efficiency and Conservation Authority;
  • Statistics New Zealand;
  • a selection of local authorities; and
  • Infrastructure New Zealand.

1.22
When we 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.

1.23
The Minister of Finance and some of the Associate Ministers of Finance were Budget Ministers and key decision-makers for the NZUP.4 The Infrastructure Reference Group Ministers and the Minister of Economic Development were the principal investment decision-makers in the SRP.5

1.24
We spoke with the Minister of Finance about both programmes during the early stages of our work. We then invited key Ministers who had been involved in the programmes to meet with us and provide any information that they held. Ministers involved in the process had an opportunity to review and comment on relevant parts of our draft report.

1.25
We looked at decision-making processes up until substantive investment decisions were made, including:

  • the advice Ministers sought and received about setting up these programmes;
  • what direction Ministers gave to officials; and
  • the advice officials provided to Ministers and Cabinet about how the programmes should be designed, which types of projects to include, and associated risks.

1.26
We also looked at how individual projects within both programmes were identified, prioritised, selected, and approved for funding.

1.27
Our work did not focus on the delivery of individual projects but we were interested in whether adequate monitoring and reporting arrangements were considered as part of developing both programmes. Because Crown Infrastructure Partners was responsible for the SRP’s overall monitoring and reporting, our work focused more on its role than on those of the other delivery agencies (see paragraph 3.26), including MBIE.

1.28
We also make some general observations about the relationship between decision-making processes and the likely value for money of investments.

1.29
We do not comment on policy decisions, including the merits of individual investments. We have not carried out or reviewed any cost–benefit analysis of individual projects, and we did not assess in detail any due diligence or other risk management processes that might have been carried out after decisions to fund projects had been made.

1.30
The procurement associated with any of the investments that form part of the NZUP or the SRP was also out of the scope of our work.

Our expectations

1.31
We wanted to understand how effective the decision-making processes underpinning the NZUP and the SRP were. We were interested in what insights they might provide for how the government makes decisions about significant infrastructure investments more generally – especially when it wants to make decisions quickly.

1.32
We were interested in:

  • how investments were identified and prioritised;
  • how decisions were informed;
  • how stakeholders were engaged throughout the process;
  • how well decisions were recorded and communicated; and
  • how monitoring and evaluation was considered.

1.33
Our expectations were informed by the requirements of the Investment Management System and other relevant guidance (see Appendix 1). In summary, our expectations are that:

  • Investments align to broader government and organisational strategies, where applicable.
  • Expected outputs and outcomes (benefits) are clearly identified and connected to New Zealand’s current and future infrastructure priorities, where known.
  • Appropriate expertise is used to support the decision-making process when needed.
  • Decision-making processes are transparent, reasonable, and proportionate to the scale of the investments being made.
  • Risks to the integrity of the process, including conflicts of interests, are identified, appropriately assessed, and managed.
  • Decision-making criteria are effective and consistently and fairly applied.
  • Full and accurate records of decision-making processes are maintained to ensure transparency about why decisions were made.
  • There are appropriate communications and engagement during the decision-making process to keep stakeholders informed and provide transparency about the process and outcomes.
  • Appropriate monitoring, reporting, and evaluation arrangements are considered in the early stages of setting up the programmes and planned to be in place as soon as projects start.

1.34
These expectations informed the findings set out in Parts 4, 5, and 6.

1.35
In November 2021, the Treasury published guidance about expediting investment decisions on its website. The guidance recognises that there are situations where investment decisions need to be made rapidly for reasons outside of a public organisation’s control.

1.36
The guidance identifies some principles for using an expedited approach. These include:

  • consulting with stakeholders and government partners early;
  • providing transparent advice to Cabinet about the risks and potential implications of making fast decisions; and
  • explaining how much (or little) risks can be mitigated and the intended processes for mitigation.

1.37
The guidance was not available to Ministers or officials when initial investment decisions about the NZUP and the SRP were made or when we set our audit expectations.

1.38
We make some observations about this guidance in Part 7.

Structure of this report

1.39
Parts 2 and 3 describe the background to the NZUP and the SRP.

1.40
Parts 4, 5, and 6 set out our main findings about both programmes.

1.41
Part 7 discusses the guidance the Treasury has prepared about expedited decision-making.

1: Te Waihanga (2021), He tūāpapa ki te ora – Infrastructure for a better future: Aotearoa New Zealand Infrastructure Strategy consultation document (2021), page 28, at tewaihanga.govt.nz.

2: The Treasury (2022), He puna hao pātiki: 2022 Investment Statement, page 51, at treasury.govt.nz.

3: “Shovel ready” was terminology that was sometimes used early in the programme to describe the nature of the projects intended to be funded. However, elsewhere, the collective term for projects approved through this fund is “Infrastructure Reference Group projects”. See “Infrastructure Reference Group”, at crowninfrastructure.govt.nz.

4: The Prime Minister and Deputy Prime Minister were also Budget Ministers for the NZUP but did not appear to be heavily involved in the design or set-up of the programme.

5: The Infrastructure Reference Group Ministers were the Minister of Finance, the Minister for Infrastructure, and the Associate Ministers of Finance. Initially, the Infrastructure Reference Group was made up of the Chair of Crown Infrastructure Partners Limited, the Deputy Chairperson of the Provincial Growth Fund’s independent advisory panel, the Chair of the Waka Kotahi New Zealand Transport Agency Board, the Chief Executive of KiwiRail, the Chair of the Infrastructure Commission Board, and the Chief Executive of the Ministry of Housing and Urban Development.