Part 3: About the Shovel-Ready Programme
3.1
In this Part, we describe:
- why the SRP was set up;
- the scope of the SRP;
- how projects were selected to receive funding; and
- which projects were funded.
Setting up the Shovel-Ready Programme
3.2
Covid-19 was first detected in New Zealand in late February 2020. By then, the National Security System had been activated, arrangements for an all-of-government Covid-19 response had been made, and a public health response had been set up at the border.
3.3
As well as the immediate public health response, the Government also considered how it would provide financial assistance to businesses and families to mitigate the economic effects of the pandemic, which it expected to be significant.
3.4
The Minister for Infrastructure considered the impact that the Covid-19 pandemic would have on the construction industry. Further investment in infrastructure was expected to reduce the pandemic's economic impact.
3.5
In March, the chairperson of Crown Infrastructure Partners wrote to a range of industry participants, consultants, local bodies, and public sector chief executives advising that Ministers had asked him to set up and chair an Infrastructure Reference Group. The Infrastructure Reference Group's purpose was to assist with preparing a list of shovel-ready infrastructure projects that could be funded and that could start as soon as construction activity was able to resume.
3.6
The chairperson's letter sought information about projects that could be included for consideration. It stated that Crown Infrastructure Partners would provide support to administer the process but that the Government would make the final decisions.
3.7
The letter was sent on 25 March 2020, the same day a national state of emergency was declared and New Zealand entered the first Alert Level 4 lockdown. Only essential businesses were permitted to operate, and they were restricted in the way they could operate. The border was closed to all but New Zealand citizens and permanent residents.
3.8
On 1 April 2020, the Ministers of Infrastructure and Transport announced publicly that the Government was seeking "shovel-ready" infrastructure projects to invest in. A project information form and guidance were made available on the Crown Infrastructure Partners website at the same time as this announcement. Information about potential projects was sought by 14 April 2020.
Scope of the Shovel-Ready Programme
3.9
On 11 May 2020, Cabinet agreed to establish a $3 billion tagged contingency from the Covid-19 Response and Recovery Fund.11 This funding was separate from, and intended to build on, the $12 billion investment that the Government had already announced for the NZUP.
3.10
The purpose of this funding was to invest in infrastructure to support the longer-term economic recovery from the Covid-19 pandemic. Funding would be awarded to projects that the Infrastructure Reference Group identified, as well as other projects that government agencies identified.
3.11
Unlike the NZUP, specific criteria were used to identify eligible projects for SRP funds. On 29 April 2020, Cabinet's Economic Development Committee agreed that the Infrastructure Reference Group would:
…initially prepare a list of infrastructure projects that are ready (or near ready) for construction, meet certain national/regional benefit criteria, are aligned with government policy, and could be deployed as part of a stimulatory package.
3.12
The Committee also noted that the Infrastructure Reference Group would also use the three guiding principles used for reprioritising the Provincial Growth fund. These were:
- an increased focus on immediate job creation and income growth;
- construction activity that would be under way within the next six months; and
- a high degree of visibility to the community to give the public confidence that renewed economic activity was under way.
3.13
The Minister of Finance described the SRP as being "about creating jobs as we recover and rebuild from the recession caused by the global Covid-19 pandemic".
3.14
The letter from the chairperson of Crown Infrastructure Partners indicated that projects would need to:
- be truly ready for construction – ready within a realistic six months;
- be of an infrastructure nature, whether horizontal (such as roads and bridges) or vertical (such as schools and hospitals);
- be of a significant size (at least $10 million, either as a single project or as a package of similar projects) and provide material employment benefits for workers; and
- bring real social or economic value to New Zealand as a whole or the region it was located in.
3.15
The project information form and accompanying guidance on the Crown Infrastructure Partners website provided further information about the criteria. Applicants were asked to identify how much financial assistance they needed. They were also asked to confirm the expected total capital expenditure and the number of full-time equivalent workers needed for construction on each project.
How projects were selected
3.16
We identified three main phases of decision-making to select projects for funding:
- The Infrastructure Reference Group led the first phase, supported by Crown Infrastructure Partners with the assistance of a review team. This process culminated in a longlist of projects that the Infrastructure Reference Group considered met the eligibility criteria for funding. The Infrastructure Reference Group reported the longlist to Ministers on 18 May 2020.
- In the second phase, officials worked with staff in Ministers' offices to reduce the longlist to a shortlist. Crown Infrastructure Partners told us that, as part of this process, Ministers asked for a list of all projects submitted to the Infrastructure Reference Group that had not made it into the Infrastructure Reference Group longlist.
- The third phase involved officials carrying out further due diligence checks of proposed projects before a group of Ministers (known as the Infrastructure Reference Group Ministers)12 ultimately approved funding.
Phase 1 – Developing the Infrastructure Reference Group longlist
3.17
Crown Infrastructure Partners led the initial assessment process on behalf of the Infrastructure Reference Group. They received project proposals and assessed them against three key criteria: construction readiness, direct employment benefit, and national/regional benefit. The assessment process included removing proposals that did not meet the criteria.
3.18
On behalf of the Infrastructure Reference Group, Crown Infrastructure Partners formed a review team to assess project proposals. The team comprised a representative from Crown Infrastructure Partners and lead partners from various professional firms. In total, the review team assessed 1926 proposals with a combined value of $134 billion.
3.19
Kānoa, the Regional Economic Development and Investment Unit within MBIE, was also involved in this initial assessment process. Crown Infrastructure Partners asked Kānoa to provide a regional perspective on project proposals.
3.20
Crown Infrastructure Partners also forwarded proposals to Kānoa, including projects that were outside major metropolitan areas and that had a value of less than $10 million. This was so it could consider regional projects that might have been more suitable for funding from the Provincial Growth Fund rather than from the SRP.
3.21
Crown Infrastructure Partners then worked with the Infrastructure Reference Group to set out a list of 802 eligible projects seeking a combined $33 billion in funding from the SRP. Projects were grouped according to three categories of construction readiness. These were projects that:
- were in the construction phase but that had been put on hold because of the Covid-19 pandemic;
- had been expected to start the construction phase within the next six months (by 31 October 2020) but that were unlikely to do so because of the Covid-19 pandemic; and
- could be expected to start the construction phase within the next 12 months (by 30 May 2021) but that were unlikely to do so because of the Covid-19 pandemic.
3.22
The longlist was provided to Ministers on 18 May 2020.
Phase 2 – Shortlisting
3.23
Once Ministers had received the longlist from the Infrastructure Reference Group, more work was needed to narrow down the list further. Negotiations took place between several Ministerial offices.
3.24
Crown Infrastructure Partners, MBIE, and Treasury officials provided additional information about projects as needed. Crown Infrastructure Partners and the Treasury also separately provided advice to Ministers on how to prioritise the lists before meeting in early June 2020 to reconcile their advice.
3.25
The paper that was ultimately prepared for the Cabinet Economic Development Committee contained a shortlist of 177 projects seeking an estimated $3.3 billion in government funding. The paper organised the projects into categories. These were:
- housing and urban development – consistent with the Urban Growth Agenda and key economic shift to transform New Zealand's housing market to unlock productivity growth and make houses more affordable;
- energy – consistent with the key economic shift to sustainable and affordable energy systems;
- community development – to support strong and revitalised regions and align with housing and urban development;
- water and waste – consistent with key economic shifts so that land and resource use deliver greater value and environmental outcomes; and
- other key central and local government infrastructure – to support the Government's wider objectives and support the recovery.
3.26
Cabinet authorised the Infrastructure Reference Group Ministers to make final decisions on which projects from that shortlist would be funded. Funding would then be allocated to relevant government agencies (called delivery agencies) for distribution to the parties responsible for the selected projects.13
3.27
In addition, Cabinet agreed some important conditions for those approvals. These included the following:
- The Infrastructure Reference Group Ministers were to use some specified criteria when deciding on the final list of projects. These were similar to, but not the same as, the criteria that had been used in Phase 1 of the process (see Figure 1).
- Delivery agencies would be required to first carry out further due diligence about the projects to provide "appropriate assurances" to Infrastructure Reference Group Ministers. The agencies needed to provide assurance about each project's scope and that it could be delivered expediently, that it could achieve the intended benefits and enable jobs, and that the funding was appropriate to enable the project while also representing value for money to the Crown.
Figure 1
Cabinet-approved decision-making criteria used in the Shovel-Ready Programme
| Original criteria | Subsequent criteria |
|---|---|
| Ready (or near ready) for construction Meet certain national/regional benefit criteria Are aligned with government policy Could be deployed as part of a stimulatory package |
The number of jobs created Regional impact and distribution of projects Project achievability and readiness Net public benefit Alignment with wider government objectives |
Note: The criteria that were included in the letter that initially sought projects to be included in the Infrastructure Reference Group process are listed in paragraph 3.14.
Phase 3 – Due diligence and final approvals
3.28
Crown Infrastructure Partners co-ordinated briefings seeking the agreement of Ministers to release funding to projects after the delivery agencies had completed the appropriate due diligence for those projects.
3.29
These briefings (except when they were only updates to previous funding decisions) generally included background checks about the project's owner, confirmation of the project's scope, and information about the project's costs, predicted benefits, milestones, employment creation, and risks. The briefings also included information about the recipient's management and delivery capability, a financial capacity and co-funding assessment, and some comments about value for money.
3.30
Each of these elements was assigned a "traffic light" status. Green indicated no issues, orange indicated some issues or risks that could be addressed, and red indicated material issues that were unlikely to be addressed.
What has been funded
3.31
Infrastructure Reference Group Ministers' approval to release funding to projects was sought through a series of briefings starting in mid-August 2020. Each briefing included additional information and recommendations about a set of projects.
3.32
Figure 2 provides information about the number of new projects recommended in each briefing, the number of full-time equivalent jobs that those projects were expected to create, and their costs.
Figure 2
Briefings seeking approval from Ministers to release funding for new projects
| Briefing | Date | Number of projects recommended | Government funding $ millions |
Anticipated number of FTE jobs created |
|---|---|---|---|---|
| 1 | August 2020 | 32 | 233.7 | Information not included |
| 2 | August 2020 | 7 | 142.0 | 844 |
| 3 | September 2020 | 11 | 88.0 | 208 |
| 4 | September 2020 | 88 | 612.0 | 2887 |
| 5 | September 2020 | 48 | 414.8 | 2835 |
| 6 | October 2020 | 13 | 320.6 | 1122 |
| 7 | November 2020 | 6 | 64.3 | 515 |
| 8 | December 2020 | 1 | 6.5 | 94 |
| 9 | February 2021 | 2 | 83.1 | 283 |
| 10 | April 2021 | 8 | 90.6 | 281 |
| 11 | June 2021 | 4 | 95.4 | 246 |
| 12 | August 2021 | 2 | 17.0 | 65 |
| 14 | December 2021 | 2 | 7.7 | 50 |
| Total | 224 | 2,175.7 | 9430 |
Note: There were 19 funding briefings to the Infrastructure Reference Group Ministers. Briefings 13 and 15 to 19 sought approval of changes to existing projects covered in earlier briefings. These changes are not reflected in the funding and employment totals in the table. The total funding approved at the end of August 2023 is provided in paragraph 3.35.
3.33
As with the NZUP, the scale of projects varied significantly, from less than $1 million to more than $100 million.
3.34
As at the end of September 2023, Crown Infrastructure Partners reported that 222 projects had been approved and funding agreements were in place. Of these, 112 projects had been completed and a further 108 had started.
3.35
Crown Infrastructure Partners reported in late October 2023 that 65% ($1.8 billion) of the funding ultimately approved by Ministers as direct government investment in the SRP ($2.7 billion) had been spent to 31 August 2023.
11: During the Budget process, tagged contingencies for specific initiatives are set aside when more work is needed before Cabinet will agree to the funding. Tagged contingencies are also used when an initiative is commercially sensitive or negotiations have yet to take place, such as State-sector wage negotiations. See "Guide to New Zealand Budgeting Practices: Contingencies and between-Budget spending", at budget.govt.nz.
12: The Infrastructure Reference Group Ministers were the Minister of Finance, the Minister for Infrastructure, and the Associate Ministers of Finance.
13: A range of government agencies were responsible for contracting, managing, monitoring, and reporting on specific projects. They included the Ministry of Housing and Urban Development, Kāinga Ora, MBIE (including the Provincial Development Unit/Kānoa), the Energy Efficiency and Conservation Authority, Heritage New Zealand, Fire and Emergency New Zealand, KiwiRail, Waka Kotahi, the Ministry of Justice, the New Zealand Police, the New Zealand Defence Force, and Crown Infrastructure Partners.