This article is an excerpt from The Art of Tendering: A Global Due Diligence Guide, which is available for purchase.
In its March 2019 report entitled Inquiry into procurement of work by Westland District Council at Franz Josef, New Zealand’s Auditor-General found inappropriate direct intervention by two local elected officials in a rushed municipal construction project initiated to protect a local wastewater facility from potential flooding. The report found a seriously flawed process that included poor decision-making and procurement planning, questionable authorizations, and the absence of proper technical advice:
This report concerns a decision of the Westland District Council (the Council) to carry out work at Franz Josef to protect the town’s wastewater treatment plant from flooding. The work was carried out on an urgent basis and resulted in the construction of a new 700-metres-long stopbank on the bank of the Waiho River. In this report, we acknowledge the serious nature of the flood risk the Council was dealing with, and the motivation of the elected members who were driving the decision to act in the community’s best interests.
However, we have serious concerns about what was done in this case. Our concern is not that the Council decided it needed to do something to address the flood risk. Our concern is about the way the Council went about making that decision, the apparent confusion or disagreement among the elected members about what had been agreed, and about the way the decision was subsequently carried out.
As the Auditor-General observed, by directly intervening to deal with the problem, the two elected officials in question bypassed appropriate governance structures and delegation practices and disregarded legislated decision-making rules:
We also have serious concerns about the extent to which some of the elected members lost sight of the fact that their role is to govern, not manage, and that their drive to get things done needed to be balanced by an understanding of the importance of doing things right.
This report identifies numerous examples of poor decision-making and poor procurement practice. They include the lack of any proper risk analysis or consideration of alternative options, the failure to seek expert advice on either the immediacy of the flood risk or whether building a stopbank was the right response, an inadequate planning and procurement process for a project of this type and scope, an apparent disregard for legislated decision-making requirements, and a failure to consult those affected by the work until the work was already under way.
Underlying all these concerns is a fundamental question about whether the construction of a stopbank was authorised in the first place. Council records show an agreement to carry out maintenance on an existing flood embankment, not to construct a new stopbank.
Furthermore, the Auditor-General found that the two elected officials decided to build a new structure in the absence of any engineering or procurement advice when repairs to the existing structure could have been a more appropriate solution to address the potential flood risk:
What was wrong with what Westland District Council did
The decision that urgent work was needed was based on an assessment by two of the elected members that the wastewater treatment plant was in imminent danger of flooding. That assessment was effectively endorsed by the Council as a whole without confirmation from anyone with relevant expertise and without any expert review of the Council’s proposed response. Potential contractors were identified and approached by one of the elected members using his business and personal connections, rather than by Council staff following a procurement process suitable for a project of this size and significance to the community.
Work then began on constructing the stopbank without any plans being drawn up, without any engineering input, without consulting with affected parties, and without considering the effect constructing a stopbank might have on the flood risk posed by other parts of the river.
Not only did the Council not seek advice from any external experts, it did not properly involve its own staff until work was already under way.
The Auditor-General also found it unacceptable that work was commenced without a bidding process or proper contractual documentation, and in the absence of clear authorization from the rest of elected council:
The first stage of the work was carried out without any clear contracting arrangements in place, and without any certainty about who was responsible for managing the work on the ground or for matters such as health and safety, compliance with the Resource Management Act 1991, or quality control.
The lack of proper contracting arrangements for the first stage of the work means it is uncertain what recourse the Council will have, if any, if the stopbank fails due to a design or construction flaw.
When some of the elected members tried to raise concerns about the scope of the work, aspects of the Council’s decision-making process (such as the lack of involvement of Council staff), and disquiet in the community about perceived conflicts of interest, these concerns were effectively dismissed or minimised.
All of this is unacceptable.
The Auditor-General concluded that the Council should have complied with applicable legislative requirements and sought advice from appropriately qualified external advisors to determine the most appropriate and cost-effective long-term solution before proceeding to deal with the flood risk:
For councils, these sorts of decision-making requirements are not just a matter of common sense. They involve both legal and good practice requirements. As with any public organisation, a council is exercising public powers. It is the essence of the rule of law that public powers must be exercised in accordance with the law.
In the case of councils, being able to demonstrate that decisions are made lawfully and for the benefit of the community is all the more important because a council is collecting and spending the community’s money, and because the only opportunity the community has to influence who makes decisions on its behalf is at local government elections every three years.
The discipline imposed by the decision-making requirements of the Local Government Act is therefore essential in holding councils to account. These requirements are, in effect, the building blocks for democratic and responsible decision-making in local government. Bypassing them where they are perceived to be unnecessary or inconvenient is not an option.
As this case illustrates, public institutions should proactively establish appropriate project governance practices to deal with time-sensitive situations so that project teams can respond to pressing operational requirements while remaining compliant with proper procurement practices.
