Part 4: Design and set-up of processes

Making infrastructure investment decisions quickly.

4.1
In this Part, we discuss the importance of designing and setting up a clear and well thought-through process for allocating significant amounts of funding to initiatives. We discuss how:

4.2
Ministers have wide discretion to make decisions about where they will direct investment. However, they still need to ensure good value for money for New Zealanders. The public ought to be able to see why the government is making an investment, what the government is investing in, how much is being spent, and what benefits that investment will provide.

4.3
The amount of funding that was allocated through both the NZUP and the SRP was significant. The risks associated with large complex infrastructure projects are also well known.14 Therefore, we expected that these processes had been carried out in a way that would, at a minimum, ensure that:

  • the objectives and outcomes sought from these programmes would be clearly identified and connected to New Zealand's current and future infrastructure priorities, where known, as well as wider government and organisational strategies, where applicable;
  • decision-making criteria would be clear and robust enough for the investments to be effectively analysed, prioritised, and selected;
  • risks would be identified and assessed, and appropriate mitigation or management strategies would be defined; and
  • key decisions and their rationale would be documented.

4.4
To achieve this, we expected Ministers to seek and consider advice from relevant officials. Although Ministers are not obliged to follow advice from officials, they have an obligation to give fair consideration and due weight to free and frank advice provided by the public service.15

4.5
We also expected effective engagement and communications during the decision-making process to keep stakeholders informed and to provide transparency about the process and its outcomes.

Summary of findings

4.6
Both the NZUP and the SRP are aligned with the Government's broad intentions to address New Zealand's infrastructure deficit and stimulate the economy.

4.7
However, how well these programmes advance specific government, sector, or organisational strategies is unclear.

4.8
Many projects included in the NZUP were already part of multi-year investment plans that agencies had prepared or had been working on, or they had been included as part of other investment processes but had not yet received funding. Ministers appear to have relied on this to satisfy themselves that these projects were good investments.

4.9
Beyond the Government's broad intention for the 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", we were not able to identify specific investment criteria to assist agencies in identifying appropriate projects to be considered for funding.

4.10
Officials consistently raised risks and uncertainties with both investment programmes to Ministers. Ministers chose to proceed quickly, despite the concerns that had been raised. It is unclear to us how these risks were considered and what steps, if any, were taken to manage or mitigate those risks.

4.11
The desire to make early announcements appears to have been a factor. Ministers told us that these decisions were made "in principle" and were subject to further due diligence. In our view, decision-makers should be cautious when announcing projects before they make final funding decisions. Once project funding is announced, it can be difficult to withdraw funding, even when costs increase or risks to benefits are identified.

4.12
The first phase of decision-making for the SRP was well organised. Applications for funding were sought through a contestable process with clear investment criteria and reasonable assessment of cost, benefits, achievability, and risk. The process was transparent, and good records about decisions were kept.

4.13
During the process of longlisting, shortlisting, and Ministers making final decisions about projects, many changes were made to the list of projects under consideration. This included adding and removing projects from the list. There are not clear records to explain how or why some of these changes were made. It is not always clear what criteria were applied or how consistently projects were assessed in this phase.

4.14
We sought information from agencies about how they managed conflicts of interest. Agencies confirmed to us that they are guided by their internal conflict of interest policies. For Ministers, the Cabinet Manual explains the standards of personal conduct expected and provides options for managing conflicts of interest.

4.15
We did not assess the quality of these processes. However, except for information that Crown Infrastructure Partners provided, the documentation we were given did not contain information about how conflicts of interest were managed. In our view, it would be prudent, when making significant funding decisions like these, for Ministers and officials to make proactive declarations about actual and potential conflicts and for these to be recorded in the documentation relating to investment decisions.

4.16
The involvement of key agencies in the design and set-up varied between the two programmes. It is likely that the design of these processes could have been improved if more of the relevant agencies were given the opportunity to work together to provide advice at the outset.

Investments were broadly aligned with the Government's priorities

4.17
In general, we expect that significant investment will align with the priorities the Government has set – for example, through government strategies and plans, the fiscal strategy, and budget policy statements. For the NZUP and the SRP, we expected that outputs, benefits, and outcomes of investments would be clearly identified and connected to New Zealand's current and future infrastructure priorities.

4.18
Te Waihanga was set up in September 2019. One of its first priorities was to prepare an infrastructure strategy for New Zealand. The strategy was not available when the NZUP and the SRP started.

4.19
On 16 September 2018, the Government published Our plan: The Government's priorities for New Zealand, which signalled an intention to invest $42 billion in net capital spending over five years to help rebuild New Zealand's infrastructure and critical public services.

4.20
The 2020 Budget Policy Statement, published in December 2019, stated that major investments would continue to be made in health, education, housing, and social programmes to address New Zealand's long-term challenges. The Budget 2020 priorities would be:

Just Transition – Supporting New Zealanders in the transition to a climate-resilient, sustainable, and low-emissions economy
Future of Work – Enabling all New Zealanders to benefit from new technologies and lift productivity through innovation
Māori and Pacific – Lifting Māori and Pacific incomes, skills and opportunities
Child Wellbeing – Reducing child poverty and improving child wellbeing
Physical and Mental Wellbeing – Supporting improved health outcomes for all New Zealanders.

4.21
Both the NZUP and the SRP were aligned with the Government's broad intentions to start to address New Zealand's infrastructure deficit and stimulate the economy.

4.22
The NZUP was intended to clarify the government's future capital programme, speed up the transition to a low-emissions economy, support business confidence, and move towards a more productive, sustainable, and inclusive economy. The NZUP includes investments in education, health, and decarbonisation, but most investments have been in transport projects.

4.23
The purpose of the SRP was to invest in infrastructure to support the economic recovery from the Covid-19 pandemic, with a particular focus on supporting jobs. The SRP includes investments in housing and urban development, projects targeting environmental outcomes (energy, waste, and water), and a range of other infrastructure projects designed to support employment outcomes.

Investments are less clearly aligned with sector and organisational strategies

4.24
To develop the NZUP, the Treasury worked with relevant agencies to identify investment options for Ministers to consider within the broad categories Ministers had identified (see paragraph 2.12).

4.25
We saw evidence that some agencies considered alignment to sector and organisational strategies. Some relevant information was included in advice to Ministers about potential investment options.

4.26
For example, a briefing to the Minister for Education about potential funding options referred to the Government's commitment to improving the condition of the school property portfolio by 2030. The briefing presented options informed by the Education Infrastructure Service's draft strategic objectives as well as wider organisational commitments.

4.27
A briefing from the Ministry of Health proposed categories of projects based on existing capital plans, the health National Asset Management Plan, and other sources.

4.28
Many projects included in the NZUP, especially the transport projects (see paragraph 2.13), were already part of multi-year investment plans that agencies had prepared or had been working on, or they had been included as part of other investment processes but had not yet received funding.

4.29
Guidance issued by the Treasury as part of the Investment Management System indicates that significant projects should consider alignment to corporate and business strategies and long-term investment plans. In some instances, the processes for considering this alignment are comprehensive.

4.30
For example, legislation guides the process for developing the National Land Transport Programme. Waka Kotahi uses a comprehensive investment prioritisation method to align transport investment decisions with the Government Policy Statement on land transport and to consider regional priorities set out in Regional Land Transport Plans.

4.31
In our view, it was reasonable for the Government to rely on this process to assure itself of the strategic alignment of the transport investment in the NZUP.

4.32
For other projects, little information was provided to Ministers about how strategic alignment had been assessed.

4.33
Applicants for the SRP were required to comment in their applications on how their proposal "brings real value" to specific government strategies, frameworks, and commitments. These included the Living Standards Framework, the Sustainable Development Goals, and the draft 2021 Government Policy Statement on land transport.

4.34
However, it does not appear that the Infrastructure Reference Group was able to form a clear view of the strategic alignment of projects, other than at a high level. When the initial shortlist was presented to Ministers, there was a high-level assessment of the strength of each sector's alignment with categories in the Government's Economic Plan and 2020 Budget Policy Statement categories.

4.35
Despite that assessment, the advice to the Government was that the "Government should consider the extent to which projects support, or are aligned with, existing Government or Local Authority initiatives and priorities". The Treasury and MBIE jointly provided Ministers with further advice on how that might be carried out, with a particular focus on alignment with the Government's Covid-19 economic recovery objectives.

4.36
Ministers told us that the outcome of their decision-making reflected the Government's priorities. They said that, during the decision-making process, some projects were prioritised based on their potential to "achieve the Government's objectives".

4.37
The documentation we were provided with contains only high-level references to strategic alignment. We cannot determine whether it was tested comprehensively.

4.38
In our view, the scale of investment that has been made as part of both the NZUP and the SRP required a more robust approach.

More attention should have been given to investment criteria

4.39
Criteria aligned to investment objectives and robust selection processes are necessary to match investment to need, to prioritise, and to maximise the probability of achieving the benefits sought from investment.

4.40
Criteria need to be clear and include enough guidance for people to determine whether they meet the criteria, so they can make informed decisions about whether it is worthwhile applying. Consistently and transparently evaluating projects against effective criteria will provide assurance to applicants and the public that the process is fair and transparent.

4.41
Criteria also need to be effective in assisting decision-makers to identify whether investments are likely to help achieve objectives and to prioritise between investments as necessary.

The New Zealand Upgrade Programme had only broad investment criteria

4.42
Beyond the broad intention of the NZUP set out in paragraphs 2.4 and 2.6, we were not able to identify specific investment criteria to assist agencies in identifying and prioritising projects to be considered for funding.

4.43
As we discussed in paragraph 2.12, the Treasury worked with agencies to identify potential projects within the broad categories Ministers had identified. It is not clear to us how the amount of funding assigned to these categories was determined (see paragraphs 2.9 and 2.10).

4.44
An internal Treasury review found that the NZUP lacked a systematic or quantitative framework to prioritise between sectors (such as housing, education, and transport), beyond stating that spending should be "high quality".

4.45
As we discussed in paragraphs 4.30-4.31, some transport projects were already part of the National Land Transport Programme, and Ministers relied on those processes as a basis for ensuring quality in that investment.

4.46
Non-transport projects might also have been part of multi-year investment plans that agencies had planned or had been working on. The Ministry of Education has confirmed that it used NZUP funding for the School Investment Package. That package included capital and maintenance works in schools.

4.47
The Ministry of Health confirmed that some health projects were identified from district heath board capital plans. Investment criteria might have been used in those processes, but this was not clear in the documentation that was provided to Ministers or that we were provided with.

4.48
When agencies briefed their Ministers on the range of projects that could be considered for inclusion, the information provided in these briefings varied. None of the briefings we saw set out any specific investment criteria that had been used to identify investment options.

4.49
Ministers told us that, in many instances, they were funding projects that had been talked about and planned for a long time. They said that they ran the decision-making process in the same manner as the Budget process.

4.50
However, in a Budget process, agencies are usually required to meet requirements that do not appear to have been tested here. Budget 2020: Guide for agencies required an appropriate Better Business Case to support all capital investment proposals.16 If an initiative seeking significant capital investment did not have a business case, it would likely be assessed as "not investment ready" and deprioritised.17

4.51
We acknowledge that officials were under pressure to give advice to Ministers. They would have had little opportunity to do detailed analysis if it had not previously been carried out.

4.52
How well projects proposed for investment through the NZUP had been properly scoped, planned, and costed was variable. Some did not have well-advanced or completed business cases. This means that, in some instances, Ministers did not have adequate information to draw on. We discuss this further in Part 5.

4.53
We acknowledge that the process to identify what would be included in the NZUP was not the same as a contestable investment fund. The Government was not seeking applications for funding or prioritising between large numbers of projects, as it was for the SRP.

4.54
Even so, it is not clear to us how agencies were able to make informed judgements about which investments to propose or how Ministers determined what they would prioritise.

4.55
It would have been helpful to have investment criteria within each of the funding categories to provide some assurance to Ministers that proposed projects were achievable and would deliver the appropriate level of value for the very significant amounts of public money being spent.

4.56
Ministers made a trade-off between speed and a more rigorous process. Although we accept that there was some justification for speed, we do not consider that the right balance was found, given the scale and importance of these decisions.

The investment criteria and assessment process for the Shovel-Ready Programme evolved over time

4.57
Unlike the NZUP, the SRP was a contestable fund that was open to both public and private sector projects. Investment criteria were particularly important to assist applicants in determining whether they would be eligible for funding. The criteria also assured applicants that applications would be assessed consistently and fairly.

4.58
Crown Infrastructure Partners worked fast to set up a process to receive and assess project applications while New Zealand was in Level 4 lockdown. Investment criteria were clearly communicated in the letter that the chairperson of Crown Infrastructure Partners sent to relevant organisations.

4.59
These same criteria were set out in the SRP guidelines and project information form published on the Crown Infrastructure Partners website. Crown Infrastructure Partners also published the method it would follow to assess projects. These steps reflect good practices.

4.60
The assessment method was well documented. It included planning for regular meetings between Crown Infrastructure Partners' management and those reviewing applications to make sure that the process was followed consistently.

4.61
Projects were:

  • filtered by location, type, and value to remove those that did not meet the criteria;
  • organised into categories according to:
    • construction readiness;
    • overall benefits (economic/social/environmental benefits and regional/nationwide benefits); and
    • risks of the project not starting within the advised timescale, of it not being completed on time, to cost, or to specification, or of it not obtaining the overall benefits; and
  • scored against each requirement (which were weighted) to develop an overall project rating.18

4.62
Crown Infrastructure Partners assessed 1926 projects against the criteria, with a combined value of $134 billion. It identified 802 eligible projects seeking $33 billion of financial assistance from the Government. All 802 projects were included in the Infrastructure Reference Group longlist presented to Ministers on 18 May 2020.

4.63
The longlist of projects involved funding that was more than 10 times the funding Cabinet had agreed to.

4.64
The Minister of Finance directed officials to identify a shortlist of projects with a focus on five "macro sectors": housing and urban development, energy, community development, water and waste, and other central and local government projects.

4.65
Crown Infrastructure Partners developed a more detailed assessment framework to support the shortlisting process. That framework included the following four parts:

  • Part A – Projects must be in a subsector that falls within the five "macro sectors".
  • Part B – The Crown Infrastructure Partners Working Group applied judgements on the general attributes of projects, such as speed to market, criticality of government assistance, and a high degree of visibility to the community to give the public confidence that renewed activity is under way.
  • Part C – The Treasury applied judgements on wider contextual considerations, including value for money and alignment with the Government's wider objectives.
  • Part D – Ensuring an appropriate regional and sector spread.

4.66
Both Crown Infrastructure Partners and the Treasury prepared prioritised lists. They then worked together to reconcile the lists into one set of advice to Ministers. We saw documentation that indicated that scoring was used.

4.67
MBIE, the Ministry of Housing and Urban Development, the Treasury, the Ministry of Transport, and the Department of Internal Affairs were also consulted as part of evaluating the projects. We understand that this was to co-ordinate these projects with existing funding programmes, including other large infrastructure investments that the Government had made, such as the NZUP.

4.68
On 24 June 2020, the Cabinet Economic Development Committee (with power to act from Cabinet) considered a joint paper from the Ministers of Finance and Infrastructure that proposed a shortlist of 177 projects seeking $3.3 billion of financial support. This list was estimated to enable 26,000 jobs and projects worth $6.6 billion.19

4.69
The list sought to achieve a wide distribution of investment throughout the regions of New Zealand, including a focus on those regions most economically affected by the Covid-19 pandemic, such as the Bay of Plenty, the West Coast, and Otago.

4.70
The Cabinet Economic Development Committee authorised the Infrastructure Reference Group Ministers to make final decisions about which projects from the shortlist would be funded using criteria that were similar to, but not the same as, the original criteria used in the Infrastructure Reference Group process (see paragraph 3.27 and Figure 1). The new criteria were:

  • the number of jobs created;
  • regional impact and distribution;
  • project achievability and readiness;
  • net public benefit; and
  • alignment with wider government objectives.

4.71
A joint press release issued by the Ministers of Finance and Infrastructure on 1 July 2020 announced that Cabinet had made initial decisions about the sectors that it would like to support and the general regional distribution of funds.

4.72
The press release also stated that more than 150 projects worth $2.6 billion had been approved in principle and that officials were carrying out final due diligence to ensure that the projects were viable and that they offered the benefits that applicants stated.

4.73
A few weeks later, on 20 July 2020, Cabinet:

  • agreed that the Infrastructure Reference Group Ministers could choose to progress projects from outside the 24 June shortlist;
  • invited the Infrastructure Reference Group Ministers to report back if the projects from outside the shortlist they chose to progress exceeded 25 projects or $500 million in government funding; and
  • agreed that, before any delivery agency distributed funding to enable a project, the delivery agency would seek final project approval from the Infrastructure Reference Group Ministers and provide appropriate assurances that the project could achieve the intended benefits and enable jobs, that it could be delivered within scope and expediently, that the government funding would be appropriate to enable the project, and that it represented value for money to the Crown.20

4.74
At the request of the Minister of Finance, Crown Infrastructure Partners co-ordinated this next stage of the process. Kānoa, MBIE's Regional Economic Development and Investment Unit, took responsibility for assessing proposals of less than $20 million where it was best placed to do so, including those proposals more suitable for funding from the Provincial Growth Fund. We discuss the due diligence process further in Part 5.

It is not clear how consistently criteria were applied to reach final decisions

4.75
The Infrastructure Reference Group Ministers were sent a series of briefings that sought agreement to funding for projects (see Figure 2).

4.76
A total of 19 briefings have been provided to date. MBIE told us that it also provided individual project briefings to Ministers as needed.

4.77
By 30 July 2021, funding for 215 projects had been approved.

4.78
Many projects were added or changed during the process of delivering the initial longlist to Ministers, presenting the shortlist of 177 projects to Cabinet, and the final approval of sets of projects by the Infrastructure Reference Group Ministers.

4.79
Crown Infrastructure Partners told us that it was not part of the process that involved selecting projects from outside of the Infrastructure Reference Group process. It told us that it was advised of these decisions after Ministers had made them.

4.80
The information available to us indicates that projects to the value of about $260 million were introduced from outside of the Infrastructure Reference Group process. The criteria and processes used to identify those projects is not clear.

4.81
Some of the projects ultimately selected for funding had not received the highest ratings against criteria, and we were told that some prioritised projects did not appear to be "shovel ready".

4.82
In our view, the lack of documentation explaining why these projects were prioritised exposes the process to potential criticism of a lack of transparency and fairness.

It is not clear how well risks were assessed or managed

4.83
With both programmes, we expected to see risk considered at the following levels:

  • Risks to the decision-making process – Given how quickly these processes were set up and progressed, we expected officials to clearly identify the risks that decisions made at speed might present (for example, to the quality of information available for decision-makers, which we discuss in Part 5).
  • Risks to the investment objectives – Given the scale of infrastructure investment, we expected to see some consideration of supply chain risks and sector capacity or workforce constraints.
  • Project-level risks – We expected to see consideration of risks to achievability, costs, and benefits and whether other requirements needed to be met (for example, to comply with the Resource Management Act 1991).

4.84
We also expected to see processes set up to manage integrity risks (for example, processes to identify and manage conflicts of interests).

4.85
Good decision-making is underpinned by "free and frank" advice from officials. Free and frank advice is designed to help Ministers to achieve their objectives and to inform them of the benefits, risks, and uncertainties inherent in their decisions.

4.86
Ministers have a duty to give fair consideration and due weight to the advice from officials. However, it is not unusual, or inappropriate, for Ministers not to follow that advice.

4.87
In our view, given that these decisions involved significant amounts of public money, the decision-making rationale should have been clearly recorded so that those decisions could be scrutinised and the public could have confidence in the integrity of the decisions made. This is especially important when decisions are contrary to advice provided by officials.

4.88
The Cabinet Manual requires Ministers to create full and accurate records of their Ministerial affairs, in accordance with normal prudent business practice. This is important to ensure appropriate Ministerial accountability and to ensure that decisions can be defended if they are challenged.

4.89
Officials identified risks and uncertainties with both investment programmes and informed Ministers of them. In particular:

  • the risks associated with making quick decisions outside of the Budget process featured in the Treasury's advice to Ministers;
  • advice to Ministers from Te Waihanga identified supply chain risks; and
  • project-level risks featured in the briefings from officials seeking Ministers' agreement to release funding for SRP projects.

4.90
However, it is unclear how Ministers assessed, managed, mitigated, or considered risks in their final decisions.

Risks were highlighted at several points during the development of the New Zealand Upgrade Programme

4.91
The Treasury advised that there were risks to value for money if decisions about the capital package were made outside the rigour of the annual Budget process. Ministers chose to proceed before the Budget process.

4.92
In December 2019, the Ministry of Transport and the Treasury informed Ministers that 11 of 27 transport projects that were being considered for the NZUP either did not have a business case or had significant necessary work outstanding.

4.93
They also advised Ministers that "there is a real risk of cost overruns, both at a project and package level, as well as delays to projects". Sector capacity was limited, and many projects were in the early stages.

4.94
Despite this, Ministers chose to go ahead. Announcements about these projects were made on 29 January 2020.

4.95
In 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.

4.96
About one week after the advice was provided, the Minister of Health and Associate Minister of Health publicly announced several health projects. Six of these (worth a total of $62.4 million) were projects that officials had advised were not ready to announce.

4.97
By February 2022, seven of eight of the mental health projects (worth a total of $101.9 million) that were approved as part of NZUP still had no estimated "go live" dates, and business cases for at least three of those projects were not expected to be approved until mid-2022. The Ministry of Health has subsequently told us that, as at October 2023, one mental health project (Whakatane) still does not have a business case approved.

4.98
Ministers told us that they expected that, where projects had funding approved but an adequate business case was not available, this would be remedied before funding could be drawn down. None of the public announcements we saw referred to these decisions being made subject to business cases being developed further.

4.99
In our view, although it is positive that Ministers recognised the need for more analysis before funding was drawn down, the decision to push forward with announcements likely created other risks.

4.100
Preparing a robust business case can identify changes to a project's scope, costs, benefits, risks, and timing. It is not clear whether or how Budget Ministers proposed to confirm that these projects were still high enough priority to justify investment when compared to other potential investments.

4.101
In our view, announcing projects that might then be significantly delayed or might not proceed risked undermining two key objectives of the NZUP: "to build clarity around the government's future capital pipeline" and provide economic stimulus.

Other risks to the integrity of decisions do not appear to have been specifically considered in the New Zealand Upgrade Programme

4.102
We expect that, at a minimum, agencies have organisational policies for routinely identifying and managing conflicts of interest.

4.103
We sought information from specific agencies about how they managed conflicts of interest in these processes. KiwiRail and Waka Kotahi confirmed that they had policies and processes. The Ministry of Education also said that the education component of the NZUP was subject to the Ministry of Education's established conflict of interest processes. The Ministry of Health indicated that district health boards would have had to manage conflicts of interest as part of project delivery.

4.104
As we discussed in paragraph 4.28, some NZUP projects had previously been considered as part of other investment processes. We expect the management of conflicts of interest to have been considered as part of those processes.

4.105
We did not examine the conflict of interest policies or processes of each agency involved or of other investment processes that projects might have been involved in before receiving funding from the NZUP. Therefore, we are not able to form a view about the quality of those processes or how much these were followed for the NZUP.

4.106
Cabinet guidelines at the time set out how Ministers should manage conflict of interests:

Ministers themselves are responsible for proactively identifying and reviewing possible conflicts of interest and ensuring that any conflicts of interest are addressed promptly.

4.107
The guidelines establish that "[m]ost conflicts can be managed" using one or a combination of:

  • a declaration of the interest;
  • not receiving papers;
  • transferring responsibility to another Minister; and
  • transferring responsibility to the agency.

4.108
We did not seek information from the Cabinet Office or the Prime Minister about conflict of interest disclosures that Ministers might have made. We have no evidence to indicate that the processes described in paragraph 4.107 were not followed.

4.109
However, we did not see any reference to conflicts of interest in any of the documentation we were provided with. Further, when making significant funding decisions like these, it would be prudent for both officials and Ministers to make proactive declarations about actual and potential conflicts, even when none have been identified, and to record them in the documentation relating to investment decisions.

4.110
This would assist in making sure deliberate and appropriate consideration is given to these matters and would support the robustness and integrity of the decision-making process.

4.111
In June 2023, the Prime Minister announced several changes to the way that Ministerial conflicts of interest are managed, including that conflict disclosures will become a standing item at the start of each Cabinet or Cabinet Committee meeting. We support this.

4.112
We encourage the Government to consider the findings in this report as well as other work we have carried out about managing conflicts of interest.21 We suggest that it consider whether further steps might be appropriate and whether any new requirements should be incorporated into the Cabinet Manual.

More attention was given to identifying risks to the Shovel-Ready Programme, particularly during the Infrastructure Reference Group process

4.113
On 17 March 2020, when Te Waihanga was asked for advice about potential responses to a decline in economic activity and, in particular, a slow-down in the construction sector, it warned of several constraints associated with infrastructure investments. These were:

  • long lead-in times for complex projects, including design, consenting, approval, and procurement activities;
  • the constrained nature of the domestic construction workforce and difficulty in training and upskilling large numbers of workers quickly;
  • already apparent supply chain bottlenecks for internationally sourced materials (because of factory or port closures); and
  • the future effect of Covid-19 on workforce availability, either directly or through mandated site closures.

4.114
Te Waihanga also warned that accelerated projects could lead to increased costs and related inefficiencies.

4.115
Crown Infrastructure Partners and the Infrastructure Reference Group also highlighted risks to Ministers. The Infrastructure Reference Group report provided to Ministers on 18 May set out the longlist of projects and included several pages of information on key risks for the Government to be aware of.

4.116
In our view, the risk information in the Infrastructure Reference Group report was comprehensive and of reasonable quality. Consideration was given to risks to central and local government, risks to the industry, risks arising from early announcements of government support, and the risk that the rating criteria and selection process could be criticised.

4.117
Specific risks identified included project cost increases and delays caused by reduced competition, skills shortage, productivity loss, price inflation, and contractor/supplier insolvencies. Mitigation options were provided for each identified risk.

4.118
Crown Infrastructure Partners told us that:

…the largest risk identified was cost overruns. The Grant Funding Agreements clearly set out that cost overruns were the responsibility of the project owner … [Regarding] schedule: the funding agreements clearly set out all milestones and required the project owner to report against these milestones. If they were missed, Crown Infrastructure Partners had the right to suspend payment until this was remedied.

4.119
To inform their final decisions, the Infrastructure Reference Group Ministers continued to receive advice about risks to individual projects in the later stages of the process. We discuss the quality of information to support decision-making further in Part 5.

Crown Infrastructure Partners took reasonable steps to manage conflicts of interest in its assessment

4.120
Crown Infrastructure Partners recognised the importance of having clear processes for conflicts of interest. Processes for the Infrastructure Reference Group's review team were well documented. The firms assessing project applications were also expected to identify conflicts of interest. Conflicts were expected to be recorded in a register.

4.121
Where conflicts were identified, this was expected to be managed by reallocating projects to a different team member or firm. We saw evidence that some project assessments were reallocated in response to declared conflicts.

4.122
SRP project applicants were asked about previous funding applications and any interactions that they had previously had with ministries and officials. As with the NZUP, Ministers were expected to follow Cabinet guidelines about conflicts of interest.

4.123
Concerns about a potential conflict of interest for a project that was considered as part of the SRP were raised with us in October 2022. We carried out an inquiry, and we published our response in May 2023.22 We found that, although an actual conflict had not eventuated, a potential conflict had not been identified when investment decisions were being considered.

4.124
In our view, given the speed and volume of decisions Ministers were being asked to make, more thought could have been given to whether managing conflicts according to usual Cabinet Office guidance would be enough. As we discussed in paragraph 4.112, we encourage the Government to consider whether it could take additional steps to strengthen the management of Ministerial conflicts of interest more generally.

Key agencies were not sufficiently involved in the establishment of these processes

4.125
The Cabinet Manual sets an expectation that an initiating department or agency with policy responsibility and the portfolio Minister for significant proposals must ensure that all agencies affected by the proposal are consulted at the earliest possible stage. Consultation with agencies that have an advisory role is sometimes needed.

4.126
Therefore, we expected to see relevant agencies integrally involved in preparing these investment programmes, providing advice to Ministers on the design of the process, providing advice on the relative merits and effects of different proposals, and facilitating communications and engagement with key stakeholders.

4.127
In our view, the design of, and decisions made about, both programmes could have been improved if relevant agencies were given greater opportunity to work together to provide the right advice at the outset.

Agencies had limited involvement in developing the New Zealand Upgrade Programme

4.128
The Treasury had a central role in the early stages of determining that there would be a capital spending package that would ultimately become the NZUP. It provided initial advice on the case for, and amount of, a capital spending package and gave some initial advice on how the process for considering investments should be run.

4.129
Te Waihanga was set up in September 2019. Its statutory functions include advising the government on current and future infrastructure needs and priorities.

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Te Waihanga told us that it first became aware of the NZUP from media announcements, although it had provided some advice to the Treasury about specific infrastructure projects in late 2019. At that stage, Te Waihanga was not aware that a wider programme of work or spending was being prepared.

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We acknowledge that Te Waihanga had only just been set up when Ministers were considering the capital package. However, given that the NZUP was described as a "once-in-a-lifetime" investment in infrastructure, we expected Te Waihanga to have been involved more.

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Most of the NZUP funding was allocated to transport projects. Waka Kotahi and KiwiRail had proposed possible projects directly to Ministers. The Ministry of Transport was not given an opportunity to advise on the approach to selecting projects. The Ministry of Transport told us that by the time it was asked for advice Ministers had already largely agreed to a list of projects costing an estimated $6.7 billion.

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When the Ministry of Transport and the Treasury did brief the Ministers of Finance and Transport, officials felt that proposals would result "in a significant change to project scope, timing, costs and funding sources" for projects that were already part of the Auckland Transport Alignment Project.

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Auckland Transport also told us it learned about the NZUP through the media.23 It had not been formally advised of Cabinet's decisions. It had no knowledge of how the decisions to select projects were made, and it was not asked for business cases or information about the projects or what the impact might be if they were included in the NZUP.

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Auckland Transport told us that it would have recommended prioritising different projects because, in its view, some that were selected were too complex to be progressed quickly or were of a low priority.

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We were also told that subsequent changes to the Regional Land Transport Plan were needed and that this meant additional public consultation had to be carried out about the use of the regional fuel tax.

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Ministers told us that they considered that local authorities had already been involved in identifying projects through regional transport plans that feed into the National Land Transport Programme.

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Information about the process was limited to a small number of officials. Ministers told us that confidentiality was critical to ensure that financial information could be published in Budget documents – and Budget information is sensitive. However, we note that the Government made several pre-Budget announcements about the NZUP in January and February 2020 (see paragraphs 2.21-2.22).

In contrast, the Shovel-Ready Programme was a more open process

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For the SRP, the decision to set up a fund and design an approach to allocating it happened even more quickly. Despite the country being in lockdown, a process was set up in little more than a few weeks.

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The Treasury was not involved in developing the initial concept. Te Waihanga was asked for advice and provided an initial briefing to the Minister for Infrastructure on 17 March 2020. This advised that an infrastructure response should focus on less complex capital initiatives with a short lead time (such as maintenance acceleration for existing assets and road resurfacing) that could be brought to market relatively quickly.

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The briefing noted that "large scale infrastructure projects are not effective mechanisms for economic stimulus due to the time needed for planning, design and procurement".

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Te Waihanga also suggested forming a Construction Intervention Taskforce throughout the government to support the preparation of an infrastructure-led stimulus package. It said that was because "no single Government agency may have the combination of resources and skills to deliver on the scale of response required to deliver confidence and certainty to the market at this time".

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The Minister for Infrastructure did not act on this advice from Te Waihanga. Instead, Ministers asked the chairperson of Crown Infrastructure Partners to set up and run an investment process.

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However, one recommendation from Te Waihanga was reflected in the assessment criteria – that the programme should favour pre-approved, pre-assessed, and "shovel-ready" projects.

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Our discussions with some stakeholders indicated that this presented challenges, particularly for local government. They felt that central government did not understand how existing funding arrangements and consultation requirements for the long-term planning process work,24 specifically that projects of a certain size and outside of existing long-term plans would typically trigger community consultation requirements.25

14: Infrastructure projects are often large scale and complex, with issues, risks, and challenges that might require sophisticated project planning, management, procurement, and governance approaches. See "Guidance" at tewaihanga.govt.nz.

15: See "Cabinet Manual" at dpmc.govt.nz.

16: Budget 2020: Guide for agencies referred to Cabinet Office Circular CO (15) 5, which sets out Cabinet's expectations for investment management. This is one of the documents we used to inform our audit expectations. See the Treasury (2015), Cabinet Office Circular CO (15) 5: Investment management and asset performance in the state services, at dpmc.govt.nz. The Treasury told us that it is now making changes to the business case, reporting, and assurance requirements in the Investment Management System to reflect the requirements of Cabinet Office Circular CO (23) 9: Investment management and asset performance in departments and other entities. This is an updated version of Cabinet Office Circular CO (19) 6, which applied at the time of the decision-making.

17: The Treasury (2019), Budget 2020: Guide for agencies, paragraph 6.41, at treasury.govt.nz.

18: A leverage adjustment to reflect the amount and form of financial assistance requested from the Government was also applied to each project.

19: Many projects that sought financial assistance from the Government through the SRP already had some project funding.

20: Cabinet also agreed that for small low-risk projects the Infrastructure Reference Group Ministers could lower the requirements for due diligence and assurances, if appropriate.

21: For example, Getting it right: Supporting integrity in emergency procurement, at oag.parliament.nz.

22: See "Letter in response to concerns about funding for the Port Nelson Slipway project" at oag.parliament.nz.

23: Auckland Transport is a council-controlled organisation of Auckland Council. It is responsible for designing, building, and maintaining Auckland's roads, ferry wharves, cycleways, and walkways; co-ordinating road safety and community transport initiatives; and planning and funding bus, train, and ferry services throughout Auckland.

24: We were also told that this is not an isolated issue and were referred to other similar funds (for example, the Strategic Tourism Assets Protection Programme).

25: See sections 82-97 of the Local Government Act 2002 for the consultation requirements.