Wellington Water – Shortcomings without proper checks and balances

Local Government constantly looks for ways to reduce costs. That’s what any business should always be doing. The Councils in the Wellington region created a framework to address their investments in their water infrastructure collaboratively. They named it Wellington Water. Wellington Water is owned by the Wellington, Hutt, Porirua, and Upper Hutt city councils, Greater Wellington Regional Council, and South Wairarapa District Council.

Recently there have been two significant reports on Wellington Water and reading them highlights the caution which our elected reps need to exercise when monitoring them, and significant shortcomings in the supposed “efficiency” of the tender process.

In September 2018 it was announced that CityCare (owned by Christchurch City Council) had lost the tender for services to Wellington Water and:

Wellington Water has named Fulton Hogan as their preferred maintenance and operations partner. The new contract, in place from July 2019, is anticipated to be for a minimum of ten years and is subject to negotiations.

In the last couple of weeks there has been media interest in Wellington Water and here was one in the Press https://www.thepress.co.nz/nz-news/360599001/reports-reveal-wellington-water-paying-three-times-more-necessary-pipe-work.

The basic issue which the report highlighted:

The report by infrastructure consulting firm AECOM and a peer review by construction consultancy Rider Levett Bucknall identified significantly higher operations and maintenance costs for Wellington Water compared to other similar councils, particularly for unplanned or unexpected maintenance.

The reviewers scrutinised Wellington Water’s contractor panel which divvies capital works jobs out to approved suppliers. They found average contract rates for pipe installation “well exceeded the average of the peer council valuation unit rates [price per km]” particularly for water and wastewater.

Other costs, especially temporary traffic management and those to set up and disestablish sites were “significant”. However, a theme throughout the report and peer-review is the limitation and inadequacy of available data.

AECOM recommends further investigation into contract mechanisms, internal processes, supplier overheads and cost data.

From the reports it appears that a small group of contractors had been sharing out the maintenance contracts and that these rates were significantly higher than those being paid by other councils.

Before a meeting of member Councils of Wellington Water last week, it was reported:

Wellington Water chief operations officer Charles Barker confirmed there was previously potential in Wellington Water for contractors and consultants to approve their own work then approve payment to themselves.

“Our primary concern though was the creation of large annual purchase orders and monthly invoices being paid automatically, irrespective of whether Wellington Water personnel have approved them as being accurate, which were findings highlighted in the report, “Barker said.

Anita Baker, Porirua’s mayor, said shareholding councils had sought assurance of value for money, which was lacking. “The reports also found a lack of oversight, assurance and weak financial processes and controls in the management of consultant and contractor panels,” she said.

Then Wellington Mator, Tory Whanau, and most of her councillors, raised concerns about the potential conflict of interest the chair of Wellington Water, Nick Leggett, has with contractor Fulton Hogan. Leggett serves as CE of Infrastructure NZ, and Fulton Hogan is a major player in this organisation as well as the preferred supplier for Wellington Water.

That’s when things got interesting. This government has an uneasy relationship with Local Government (I’m being charitable). So the next thing there was this headline Chris Bishop backs Wellington Water board chair | Stuff. The Prime Minister never misses an opportunity to put the boot into Wellington City Council when it was reported:

Prime Minister Christopher Luxon called Wellington Water a “total basket case” when asked about the situation at his post-Cabinet press conference on Monday afternoon. If he wants to spend time rustling through basket cases he might like to focus in his own government’s mishandling of the food in schools disaster.

Central Government could see a chance to focus on Wellington City Council again, even though Wellington Water is an amalgamation of 6 Councils and so then the new Minister of Local Government, Simon Watts waded into the debate. Here’s what the media reported about his actions:

Asked whether he had confidence in Wellington Water, Watts said the company was not meeting ratepayers’ expectations. Watts said he was also seeking advice from officials on potential options the Government has to intervene.

“I’ve asked officials to advise me what powers I have, intervention powers, in regards to Wellington Water. “Obviously, you’ll be aware I have an observer on Wellington City Council at the moment.”

It’s well worth reminding the Minister that Wellington City Council is one of 6 members of Wellington Water and the fact that he has an observer at the Council is completely irrelevant.

The key issue, which has nothing to do with Central Government, is that something strange has happened with the tendering systems at Wellington Water. This has involved at least Fulton Hogan in some way. They are a significant player in Infrastructure NZ. Fulton Hogan’s chief executive, Ben Hayward, sits on the board of Infrastructure New Zealand.

The CE of Infrastructure NZ is also Chair of Wellington Water. In response to media queries about any conflict of interest he might have, Nick Leggett replied:

Leggett said that there is a “perceived” conflict. “That’s significant but the board and I have taken steps every step of the way to manage that interest. “Leggett said he has worked in the best interest of Wellington Water and ratepayers, not anyone else.

Next to put their oar into the debate was Alan Pollard, chief executive of Civil Contractors New Zealand. This debate was threatening to blow out of the water the sacred cow, the religious taonga of business, the beauty of contracting out public services. Pollard wrote an article for the Post https://www.thepress.co.nz/nz-news/360608538/contractors-not-blame-wellington-water-dysfunction where he wrote:

A lot of factors that can improve value for money are within council control. A key example is the lack of waste disposal sites, and that has led to massive inflation in tipping costs for excavated material, while temporary traffic management costs have also massively inflated in recent times.

Contractors operate on slim margins, and they are bound to comply with client requirements and project design specifications. Instead of avoiding responsibility, councils should be looking at regional efficiencies and what is inflating cost, such as materials supply, traffic management and waste management.

My response to this article is, in theory this is true. Another option is to have a mix of contracting out and in-house services to ensure sensible pricing is in place which wasn’t considered in the article because, I guess, it didn’t suit his argument. However, Pollard raising waste disposal sites is a complete red herring.

The issue here is that it appears that there has not been transparency with charging at Wellington Water and that everybody is ducking for cover, including everybody in the contracting sector. Local Government relies on transparency and, even if he is completely innocent, there is a perception that Nick Leggett has a massive perception of a conflict of interest and, if he really believes in the beauty of competitive contracting within a transparent structure he should resign.

I will leave the final comments to Bryce Edwards of the Integrity Institute  when he wrote about the Wellington Water issues:

The latest damning reports on Wellington Water’s procurement failures is not just a scandal — it’s a case study of everything that is wrong with New Zealand’s infrastructure management. Waste, inefficiency, and a culture that privileges corporate contractors over ratepayers have created a situation where Wellingtonians are paying three times more than necessary for essential water services.

Yet, despite the scale of the failure, accountability remains elusive. Wellington Water’s chairperson Nick Leggett has acknowledged the problems but remains in his role. His dual position as head of the Infrastructure New Zealand lobbying group which represents major corporate interests in the sector —raises serious concerns about conflicts of interest and a lack of genuine oversight. This debacle exposes the deep flaws in how public infrastructure is managed in New Zealand, where the lines between government service provision and private profiteering are increasingly blurred.

Bryce Edwards concludes:

Wellington Water’s procurement scandal should be a reality check as the country embarks on billions of dollars of infrastructure spending. The failures in financial oversight, the culture of contractor capture, and the sheer waste of public money highlight systemic problems in New Zealand’s infrastructure management. But unless there are real consequences—starting with Nick Leggett’s resignation and a fundamental rethink of how public projects are managed—this will simply be another scandal that fades away while the waste and inefficiency continue.

Increasingly in case studies like Wellington Water, and more widely with public infrastructure, we see a cosy little cabal enriching themselves at the public expense and destroying the basic infrastructure of places like Wellington as a byproduct.

New Zealanders deserve better. It’s time for an infrastructure system that prioritises public good over private profit.

Every elected rep should watch this issue carefully.