Agenda of Revenue, Expenditure and Value Committee

Revenue, Expenditure and Value Committee

12 November 2024

Auckland Council quarterly operating savings progress report

File No.: CP2024/15038

Te take mō te pūrongo

Purpose of the report

1. To provide an update on the progress towards meeting the savings targets for Auckland Council for the 2024/2025 financial year.

Whakarāpopototanga matua

Executive summary

2. Auckland Council has had several operating savings targets set through recent annual and long-term planning processes, including:

· $90 million per year from the 2021-2031 Long-term Plan (the Recovery Budget) which has been fully achieved;

· $33 million per year for Auckland Council and $5 million per year for the Revenue, Expenditure and Value (REV) Committee from the 2023/2024 Annual Plan which has been partly achieved;

· $28 million for 2024/2025 from the 2024-2034 Long-term Plan (LTP) (increasing to $47 million in 2025/2026 and $67 million per year from 2026/2027 onwards) which is a new target.

3. This financial year we will be reporting on progress towards achieving the combined $38 million 2023/2024 Annual Plan and $28 million 2024-2034 LTP savings targets – a total target of $66 million.

4. In the three months to 30 September 2024 Auckland Council has achieved $13.1 million in savings from a reduction in senior staff roles, detailed budget reviews, marketing and communication reductions, and a reduction of activities in a range of discretionary areas including the use of professional services. Combined with $18.8 million recurring savings already achieved towards the Annual Plan 2023/2024 savings target, a total of $31.9 million or 48 per cent of the $66 million target has been achieved.

5. Progress against the savings target is reported quarterly to the Governing Body as part of quarterly performance reporting and monitored monthly by the Executive Leadership Team for progress, risks and opportunities.

Ngā tūtohunga

Recommendation/s

That the Revenue, Expenditure and Value Committee:

a) tuhi ā-taipitopito / note that Auckland Council has achieved $13.1 million operating savings for the quarter ended 30 September 2024, which combined with recurring savings brings the total savings achieved for the 2024/2025 financial year to $31.9 million or 48 per cent of the $66 million target.

Horopaki

Context

6. Through the annual and long-term planning processes, Auckland Council has a number of operating savings targets that have been set over time:

· $90 million per year from the 2021-2031 Long-term Plan (the Recovery Budget). This target has been fully achieved;

· $33 million per year for Auckland Council and $5 million per year for the REV Committee from the 2023/2024 Annual Plan;

· $28 million for 2024/2025 from the 2024-2034 Long-term Plan (increasing to $47 million in 2025/2026 and $67 million per year from 2026/2027 onwards). Resolution number GB/2024/45.

7. Attachment B sets out these savings targets in graphical form, along with the actual savings achieved over the last three years, both in terms of total savings and ongoing savings.

8. The 2024-2034 Long-term Plan continues to require significant financial restraint in the operating costs of Auckland Council. This includes setting prudent baseline funding measures and requiring additional initiatives to drive efficiency and value for money. Long-term Plan decision-making set out both specific initiatives and target amounts for the Chief Executive to achieve as operating savings. Note that the term “operating savings” refers to both cost reductions and revenue increases, that is, any initiative that improves the net operating result.

9. The table sets out the remaining operating savings targets for the 2024/2025 financial year and their status at 1 July 2024:

$ million	Target	Notes
33	2023/2024 Annual Plan	Partially achieved ($18.8 million) through recurring savings
5	2023/2024 Annual Plan (REV Committee)	Achieved in prior year through one-off savings
28	2024-2034 Long-term Plan
66	Total operating savings target 2024/2025

10. For the current financial year we will be reporting on progress towards achieving the targets in this table totalling $66 million.

11. As at 1 July 2024 $18.8 million in enduring savings had been achieved towards the overall $66m target, leaving $47.2 million to be achieved over the course of the 2024/2025 financial year.

Tātaritanga me ngā tohutohu

Analysis and advice

12. The following operating savings totalling $8.4 million have been made in the quarter ended 30 September 2024, which contribute towards the $28 million 2024-2034 Long-term Plan target:

· $0.2 million permanent savings from reduction in marketing and communication activities

· $3.5 million permanent savings from further reducing activity in a range of discretionary areas, including the use of professional services

· $3.7 million saving from a change to the timing of the “Deliver Differently” programme relating to community assets, services and open spaces with minimal or no service impact

· $0.5 million permanent savings from increase in user fees and charges to better reflect costs associated with providing services

· $0.5 million reduction in waterfront activation budgeted spend by Eke Panuku in the first three years in the current LTP.

13. Ongoing reductions have been made to communications, marketing and engagement activities, such as the promotion of some council services, and shifting public consultation to focus on what is required by legislation.

14. Reductions of $3.5 million relating to activities in discretionary areas, including the use of professional services, have been made from across the organisation through reprioritisation and a detailed review of historical spend against budget.

15. Furthermore, a change in timing to the “Deliver Differently” programme relating to community assets, services and open spaces has been implemented. This programme focuses on a transition to more innovative ways of delivering council services with a reduced reliance on physical assets. This will be phased later within the first three years of the current LTP term with minimal or no service/programme impacts expected.

16. A $0.5 million per year increase in user fees and charges has been made in areas such as land advisory services and bookable spaces. A further $1.0 million improvement to building consent revenue has also been identified and is being validated by the service delivery team.

17. A $0.5 million reduction in general rates funding for Eke Panuku Waterfront activation has been achieved through reprioritisation. This would create change to the operation of the City Centre Advisory Board and the waterfront regeneration funding mechanisms.

18. From 2025/2026 onwards a $7.0 million reduction in general rates funding for destination marketing and major events has been implemented, with expectations this would be funded from the introduction of a tourism bed-night visitor levy. Delays to the roll-out of the bed-night visitor level would impact on this activity, with discussions underway on options to manage this timing risk.

Pools and Leisure $3m annual operating savings progress update:

19. The focus for the Pools and Leisure team has been on procuring new contracts for our outsourced facilities. The process to identify operating efficiencies for council-run facilities has commenced and a long-list of ideas is being created. The next steps will be to create a framework for assessing the ideas and to implement "quick wins". A progress update will be provided as part of the next quarterly savings reporting to this committee.

ECE services:

20. Our withdrawal from the direct provision of ECE services has now been completed, with the remaining four ECE centres in Kaipātiki (three) and Howick (one) transferred to third-party service providers from 1 October 2024. Progress has been made on achieving savings, including direct management, vehicle and software costs, however more work is required to investigate further savings such as leasing opportunities, property utilisation costs and corporate overheads. A more fulsome update will be provided following completion of this work in the next quarterly operating savings progress report.

Reductions of $4.7 million under delegation to the Chief Executive:

21. The following savings have been achieved in this category:

· $2.8 million permanent savings through the Strengthen our Leadership change process, which went live in June 2024

· $1.2 million permanent savings from detailed budget reviews following the leadership change process

· $0.7 million one-off staff cost budget not spent in the first quarter due to unfilled vacancies

22. Auckland Council concluded a significant change to refresh the senior leadership and consolidate portfolios, which brings accountability and the culture of the organisation into sharp focus while maintaining organisational stability. The change resulted in most roles across the tier 2 and 3 management layers being disestablished, and a smaller number of larger senior leader roles created at director and general manager levels. A permanent saving of $2.8 million has been achieved in 2024/2025, with a $4.3 million per annum ongoing benefit.

23. Further, the leadership change resulted in a reduction of some supporting roles, a net reduction of portfolios, and was accompanied by a detailed budget review based on the new leadership structure. This resulted in further permanent savings of $1.2 million in 2024/2025, with a $1.5 million per annum ongoing benefit.

24. These savings contributed towards increasing the partial achievement of the $33 million savings target from the 2023/2024 Annual Plan from $18.8 million at the start of this financial year to $23.5 million by the end of the September quarter.

Overall savings position

25. A total of $13.1 million of savings were achieved over the three months ended 30 September 2024.

26. Combining the $8.4 million of LTP savings initiatives achieved by that date with the $23.5m of savings towards the 2023/2024 Annual Plan target, the overall savings achieved by the end of the September quarter was $31.9 or 48 per cent of the $66 million target.

27. A one-page summary of the Auckland Council savings programme as at 30 September 2024 is included as Attachment A to this report.

Tauākī whakaaweawe āhuarangi

Climate impact statement

28. The spend reductions achieved did not relate to projects or activities with a focus on achieving improved climate impact outcomes.

Ngā whakaaweawe me ngā tirohanga a te rōpū Kaunihera

Council group impacts and views

29. The savings targets for 2024/2025 partly apply to the council-controlled organisations, except Auckland Transport. Some savings initiatives are to be achieved for the group, for example, corporate property rationalisation, strategy and planning simplification, and group shared services.

30. New tools and process improvements successfully implemented in Auckland Council may also be shared with the council-controlled organisations for greater efficiencies and other benefits.

Ngā whakaaweawe ā-rohe me ngā tirohanga a te poari ā-rohe

Local impacts and local board views

31. The adopted 2024-2034 LTP noted that savings contributions are expected to come from implementing more cost-effective service delivery models for the provision of regionally-networked local services such as pools and leisure, and property management across the council group. These may affect local board budgets.

32. With the introduction of fairer funding for local boards from 1 July 2025, consideration is being given as to how this may work in the future.

Tauākī whakaaweawe Māori

Māori impact statement

33. This report does not seek any decision. The savings initiatives and targets were set as part of the annual budget process which was subject to consultation and considered impacts on Māori for the purposes of that decision-making. In terms of the savings achieved in the first quarter, we have not noted any that have any particular impact on Māori.

34. The Māori outcomes budget is ring-fenced for delivery of Kia Ora Tāmaki Makaurau and was not subject to cost reductions.

Ngā ritenga ā-pūtea

Financial implications

35. This report provides an overview of how Auckland Council is performing against its operating savings target, which supports meeting the 2024/2025 financial year budget. Savings reporting is included in the Auckland Council quarterly performance reporting to the Governing Body for context as part of the council’s overall financial performance.

36. There are financial implications if the savings targets are not met for 2024/2025. This would result in higher debt levels and therefore higher interest costs and would have flow on effects through to future financial years. This would compound with the further $19 million savings target already included in the starting point for the 2025/2026 Annual Plan. These additional costs from not achieving savings would need to be considered through the annual plan process as to how they could be met, for example, through reducing services, deferring capital investment or increasing general rates.

Ngā raru tūpono me ngā whakamaurutanga

Risks and mitigations

37. Progress towards the savings targets is on track, with a pipeline of expected efficiency improvements and anticipated expenditure below budgeted levels. Work is under way to identify further opportunities to close some gaps however, such as the shortfall from prior estimated savings through a change to the service delivery model for Pools and Leisure.

38. The significant risks to achievement of future savings and cost reduction targets include inflationary pressures on staff and other contracted operating costs which may reduce savings opportunities; and the pace at which process and efficiency improvements are implemented in order to realise benefits.

Ngā koringa ā-muri

Next steps

39. The next update will be provided after the council’s quarter two results are finalised for the financial year 2024/2025.

Ngā tāpirihanga

Attachments

No.	Title	Page
a ⇨	Auckland Council savings programme overview as at 30 September 2024
b ⇨	Savings target FY2022 - FY2027

Ngā kaihaina

Signatories

Authors

Nicole Heng - Senior Finance Advisor - Programmes

Brian Chan - General Manager Financial Advisory

Authorisers

Brian Chan - General Manager Financial Advisory

Ross Tucker - Group Chief Financial Officer

Revenue, Expenditure and Value Committee

12 November 2024

Section 17A review update and approval of Terms of Reference

File No.: CP2024/16237

Te take mō te pūrongo

Purpose of the report

1. To approve the terms of reference for section 17A reviews of Marina Management and Building Consents.

2. To provide an update on approved service reviews that are already underway.

Whakarāpopototanga matua

Executive summary

3. Local authorities are required by legislation to undertake section 17A service reviews (also known as “value for money reviews”).

4. Section 17A reviews aim to improve the cost-effectiveness and quality of service delivery to Aucklanders. They are one way we can ensure our resources are spent in a way that best meets the needs of communities of Auckland.

5. The service reviews are also expected to identify savings to contribute to the Long-Term Plan 2024-2034 savings targets.

6. This report contains an update on approved service reviews that are underway, as well as the proposed Terms of Reference for the Marina Management and Building Consent reviews.

Ngā tūtohunga

Recommendation/s

That the Revenue, Expenditure and Value Committee:

a) whakaae / approve the Terms of Reference for the Marinas Review.

b) whakaae / approve the Terms of Reference for the Building Consents Review.

Horopaki

Context

7. Section 17A of the Local Government Act 2002 says that local authorities “must review the cost effectiveness of current arrangements for meeting the needs of communities for good quality local infrastructure, local public service and performance of regulatory functions”. Reviews must also consider options for how services are governed, funded, and delivered.

8. Reviews aim to improve the efficiency and effectiveness of delivering public services. They require a systematic evaluation of how services are delivered and whether improvements or changes are needed to deliver a better service for residents. Improvements are made through examining the below.

· Efficiency and Cost Savings: Reviews seek to identify ways to deliver services more efficiently, including by identifying inefficiencies and areas where resources are not optimally used.

· Service Quality: Reviews may assess whether the current methods of service delivery meet the desired outcomes for residents. If service quality is lacking, the review provides an opportunity to consider improvements.

· Alternative Models: Reviews must assess other potential service delivery models, including collaboration, shared services, and public-private partnerships. This can lead to innovation and modernising service delivery approaches.

· Long-term Planning and Strategy: Reviews help the council think strategically about the future sustainability of services. By reviewing services periodically, local authorities can align them better with community needs and long-term objectives.

9. Overall, section 17A service reviews promote accountability and continuous improvement, ensuring that public services evolve to meet changing community needs and deliver value for money.

Auckland Council Section 17A reviews – Long Term Plan 2024-2034

10. The Long-term Plan 2024-2034 highlights a priority to deliver “better, faster, and cheaper.” Service reviews can advance this priority by improving cost-effectiveness (“cheaper”) and service quality (“faster and better”).

11. Service reviews are also expected to contribute to organisational savings targets. The Long-term Plan 2024-2034 provides for $27.8 million of additional savings in year one rising to $67 million in year three. These targets required the organisation to make ongoing annualised operating cost savings (i.e. permanently take cost out or permanently increase revenue), rather than rely on short-term or one-off measures.

12. To meet these targets, service reviews are expected to contribute about $12 million in annualised savings by year three.

Governance

13. Section 17A reviews are to be included in the Revenue, Expenditure and Value Committee’s annual work programme including approving the terms of reference for individual reviews, as well as monitoring and reporting on the implementation of, and the recommendations arising from those reviews.

Tātaritanga me ngā tohutohu

Analysis and advice

Service Review Pipeline

14. Reviews for the 2024/2025 financial year are detailed below:

FY25	Description	Status	Update since September report
Pools and Leisure Delivery Model	Review of the service delivery strategy and delivery model for Pools and Leisure	Implementation and Delivery – led by the department	New contracts approved at the October REV committee
P27 Contracts: Parks and Community Facilities	Review of full facilities maintenance contracts	Initiate	Strategic Assessment complete
Group property review	Review of the structure and performance of the council property portfolio management functions	Initiate	Advice to be provided as part of the Annual Plan 25/26 workshops
Marina management	Review of marinas across the council group	Strategic Assessment	Terms of reference ready to be approved
Building Consents	Review of the building consents function	Strategic Assessment	Terms of reference to ready to be approved

Decision Making and Reporting

15. Initiating a section 17A review will include internal scoping and shaping of the business case, this process will identify and define decision makers. If the identified decision makers are elected members they will be engaged from the start of the process, with regular updates on progress.

16. To ensure that service reviews are prioritised according to the guidance of elected members, the Revenue, Expenditure and Value Committee will receive regular quarterly updates on the progress of current reviews, as well as potential future reviews.

Marina Management – Terms of Reference

17. The Revenue, Expenditure and Value Committee approved the scoping of a Marina Management review in September 2024 (Resolution ECPCC/2024/31).

18. Auckland Council owns six marinas, with three managed by Eke Panuku and three under long-term leases. The largest is Westhaven Marina.

19. The absence of a council marina ownership framework has raised concerns about the council's role in marina management and asset performance. Without a clear framework there is risk that key decisions, long-term investments, and marina performance may be negatively affected.

20. The upcoming review will develop a new council marina ownership framework to align with community benefits, financial sustainability and stakeholder engagement, while exploring optimal ownership or management models.

21. The review will also assess the following:

· Marina ownership and management models

· Financial and asset performance

· Stakeholder engagement and community benefit

· Compliance with safety and environmental regulations

· Lease and licensing arrangements

· Strategic alignment with council objectives.

22. The full Terms of Reference can be found in Attachment A.

Building Consents – Terms of Reference

23. The Ministry of Business, Innovation and Employment (MBIE) is undertaking a review of the Building Consent system, with significant support from the ministers. This may lead to meaningful changes that could affect Auckland Council’s Building Consents department.

24. The Auckland Council building consents review will conduct a current state analysis of the consenting process with comparative modelling against other New Zealand and Australian local government organisations. This can be then used as a baseline for a potential MBIE review.

25. The review will assess the following:

· What are the alternative operating models of delivering the building contents service?

· What is the optimal service delivery model from a customer view?

· Has there been any best practice guidance?

26. The full Terms of Reference can be found in Attachment B.

P27 “Te Ara Hura” – Next steps

27. An update on P27 “Te Ara Hura” will be provided in a separate report.

CCO Reform options

28. The Mayor has requested advice on options for how CCO functions could be delivered and, in particular, if the functions can be brought in-house.

29. The advice is to support options for inclusion in the Mayoral Proposal in November 2024 and then to advise the Budget Committee on its decisions.

30. The Revenue, Expenditure and Value Committee has requested that section 17A reviews are in alignment with the CCO reform (Resolution ECPCC/2024/31).

31. This work intersects with the reviews underway for the Group Property Review and Marinas. The Value for Money team is part of the CCO Reform work and will work closely to ensure that lessons and/or opportunities created by this work are considered as part of the service reviews, and that the work is phased appropriately.

Group Property Review update

32. Advice will be provided on the property operating model as part of the Annual Plan workshops with the Governing Body in November.

Tauākī whakaaweawe āhuarangi

Climate impact statement

33. Our climate commitments are set out in Te Tāruke-ā-Tāwhiri: Auckland's Climate Plan. With every service review, climate commitments are considered to ensure the decisions we make positively contribute to achieving the targets.

34. There is a commitment within the plan to reduce greenhouse gas emissions by 50 per cent by 2030 (against a 2016 baseline) and to achieve net zero emissions by 2050.

35. Reviews will seek to identify opportunities that improve cost effectiveness and reduce greenhouse gas emissions.

Ngā whakaaweawe me ngā tirohanga a te rōpū Kaunihera

Council group impacts and views

36. Section 17A reviews occur across the council group. Once a service review has been triggered, then a value for money assessment will be undertaken and options for future service delivery considered. These may result in a change of service delivery to maximise the cost-effectiveness of the service. Impacts to the council group will be considered as part of reviews.

Ngā whakaaweawe ā-rohe me ngā tirohanga a te poari ā-rohe

Local impacts and local board views

37. Service reviews have different levels of impact on local boards. When a service review assessment will impact the level of service within a particular local board area, then staff will either seek a decision or feedback from the board depending on the allocated decision-making responsibility.

Tauākī whakaaweawe Māori

Māori impact statement

38. When reviewing services, consideration will be given to how council services (and any decisions to change) impact on the council’s statutory obligations derived from Te Tiriti o Waitangi, and its strategic commitments to Māori articulated through the Auckland Plan 2050 and Kia Ora Tāmaki Makaurau – Māori Outcomes Performance Measurement Framework (KOTM).

39. Generally, service reviews and decisions impact on the outcomes in the KOTM Framework as follows:

· Kia Ora te Whānau – Whānau and Tamariki Wellbeing: the council group is committed to providing relevant and welcoming public facilities and services for whānau Māori, including support for Māori-led services where appropriate:

o Service reviews and decisions consider both the impact on the relevance and manaakitanga of council services for whānau Māori, and opportunities to support Māori-led and co-designed services.

· Kia Hāngai te Kaunihera – An Empowered Organisation: the council group works to fulfil its commitments and legal obligations to Māori derived from the Treaty of Waitangi, as well as its capability to deliver Māori outcomes:

o Service reviews and decisions consider impacts on kaimahi Māori and Māori specialist roles, including potential reductions and opportunities to further support and embed specialist roles into service provision and design. Te ao Māori perspectives are considered as a part of service design.

· Kia Ora te Rangatahi – Realising Rangatahi Potential: the council group aims to support rangatahi Māori in their career development, and to participate meaningfully and effectively in council’s decision making:

o Service reviews and decisions consider specific impacts to rangatahi Māori as both employees of Auckland Council and beneficiaries of council provided services.

40. Other outcomes and areas of interest for Māori may be identified through specific service reviews and decisions.

41. Specific engagement processes with mana whenua and Māori communities will be undertaken when there is a significant change in the level of service identified.

42. Service decisions will also consider Houkura - Independent Māori Statutory Board’s Schedule of Issues of Significance 2021-2025, and where appropriate seek additional advice from Houkura’s secretariat.

Ngā ritenga ā-pūtea

Financial implications

43. The basis of section 17A is to ensure that services are cost-effective when meeting the needs of the community. This is to ensure that Aucklanders are receiving value for money from the council services that they receive.

44. The Long-term Plan outlines Auckland Council’s commitment to delivering additional permanent on-going operating savings. These savings will come from a combination of service changes and efficiency savings. If we do not achieve these savings, then rates will need to increase by more than planned ($25 million of ongoing operating savings is equivalent to about a 1 per cent average residential rates increase).

Ngā raru tūpono me ngā whakamaurutanga

Risks and mitigations

45. Each section 17A review has risks specific to that review. These risks are identified and mitigated as early as possible when the review is scoped by staff.

46. Section 17A reviews result in recommendations for how a service can be better delivered. If these recommendations are not approved and implemented, then there is a risk that the long-term plan savings targets are not met, and the potential of further residential rates increases.

47. There is a reputational risk if Auckland Council does not comply with the requirements for section 17A. The Local Government Act does not explicitly set out any consequence for not complying, and therefore the consequences are most likely political or reputational rather than legal, and also depend on the nature of the non-compliance.

Ngā koringa ā-muri

Next steps

48. Staff will continue with the review of services as required by legislation or by council decision and updates will be provided to the committee quarterly.

Ngā tāpirihanga

Attachments

No.	Title	Page
a ⇨	Marinas - Terms of Reference
b ⇨	Building Consents - Terms of Reference

Ngā kaihaina

Signatories

Author

Chantelle Subritzky - Head of Value For Money

Authorisers

Anna Bray - General Manager Group Strategy, Transformation and Partnerships

Max Hardy - Director Group Strategy and Chief Executive Office

Ross Tucker - Group Chief Financial Officer

Revenue, Expenditure and Value Committee

12 November 2024

Options update for P27 “Te Ara Hura” Full Facilities Maintenance Contracts

File No.: CP2024/16260

Te take mō te pūrongo

Purpose of the report

1. To update the committee with the initial work undertaken and options considered for the P27 “Te Ara Hura” Full Facilities Maintenance Contracts.

2. To seek endorsement from the committee to not proceed with further investigation into the fully insourced facilities maintenance model or fully outsourcing to a single entity model.

3. To update the committee on staff’s proposed further investigation into shortlisted options, including the initial recommended option of a hybrid contract model.

Whakarāpopototanga matua

Executive summary

4. In 2017, Auckland Council consolidated the maintenance of parks and community facilities under a set of outcome-based contracts expiring in 2027. These contracts aimed to leverage the council's scale, simplify maintenance operations and manage risks through outsourcing.

5. As part of the 2027 contract renewal process, Auckland Council has been gathering feedback from staff, suppliers and performance data to assess the current state and explore future options. This has included identifying strengths and key areas for improvement in the current contracts, as well as an environment scan of facilities management best practices across New Zealand and Australia.

6. Findings from the options analysis have indicated that full insourcing is cost-prohibitive due to the scale of the operations required, while full outsourcing to a single entity would pose a high risk to council.

7. The current shortlisted options for contract delivery include the status quo option of baseline conventional outsourcing, a hybrid model of modified contracts, and a strategic alliance.

8. The initial recommended option from the value for money assessment is a hybrid approach as this will retain the strengths of the current contract while enhancing effectiveness. It proposes maintaining a balance between outcomes-based and frequency-based terms that have proven beneficial to Auckland, while keeping several main suppliers to provide flexibility, mitigate risks, support community delivery, and diverse and local suppliers.

9. The investigation into the optimal hybrid contract model is currently in its early stages and will be presented to elected members, local boards and mana whenua for feedback to help identify further specific goals. This will later inform market testing.

10. This is the first of several updates for this committee to ensure the committee is informed and involved in the development process before a final recommended option for contract delivery is approved in 2026.

Ngā tūtohunga

Recommendation/s

That the Revenue, Expenditure and Value Committee:

a) tuhi ā-taipitopito / note that staff have assessed a wide range of potential options for the contracts and developed a short list of options and an initial recommended option.

b) ohia / endorse staff not progressing with further work to investigate either a fully insourced facilities maintenance model or fully outsourcing to a single entity model.

c) tuhi ā-taipitopito / note that staff will progress further investigations into shortlisted options for the P27 “Te Ara Hura” Full Facilities Maintenance Contract with focus on the initial recommended option of the hybrid contract structure explained in the report.

Horopaki

Context

Current contracts

11. In 2017, Auckland Council combined the full facilities maintenance contracts for its Parks and Community Facilities assets to leverage council’s scale and transform its maintenance practices into outsourced, outcome-based, 10-year contracts across a small number of main contractors. This simplified the organisation, enabled the addition of additional services to be provided under the same budget and moved significant risk onto the suppliers to manage.

12. The current contracts expire in 2027. Managing these contracts over the past seven years has provided valuable insights, leading to numerous successes and a few significant challenges.

13. The project is at a very early options analysis stage, and this is the first of several updates. Elected members, local boards and mana whenua will have input before any market engagement.

Tātaritanga me ngā tohutohu

Analysis and advice

Methodology and approach

14. The review draws on the Better Business Cases™ framework developed by New Zealand Treasury. The overall stages are shown in the diagram below. Completing the Strategic Case and options analysis in the Economic case assists with the identification of an initial recommended option that optimises public value. This is a preliminary finding, as elected member engagement, market testing, as well as financial and implementation planning will provide further insights.

Figure 1. Better Business Cases™ Framework

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15. The diagram below shows the intensive research, inputs and workshops informing this review process.

Figure 2. Strategic and Economic Case Process

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Proposed goals for future contracts

16. The current contracts have areas that can be improved, establishing clear objectives for future contracts. In order of weighting and focus these are:

· reduce undue council risk and cost commitments

· improve contract service delivery

· achieve our social, environmental and supplier diversity targets (including policies that favor local and diverse suppliers, and enhancing sustainable procurement practices)

· increase our understanding of asset condition

· increase our understanding of asset “cost to serve”.

17. While these objectives are framed from a regional perspective, the goals of local boards will be assessed in the upcoming stages of the feedback process with local boards.

Environmental scan

18. When council’s scale was leveraged in 2017 by moving from 38 small contracts to five larger contracts, it generated $30m of ongoing cost avoidance. Cost analysis of the current contracts found costs were stable over time for areas such as open spaces, but there were significant measurable increases in the built environment over the last few years.

19. The environmental scan found there was interest from some organisations in moving to outcomes-based contracts. Some of the challenges noted with outcomes-based contracts was around a belief that some tasks suited scheduled work in order to improve risk and cost control.

20. The environmental scan found larger contracts enable economies of scale with greater sharing of resources, lowering pricing, enabling low council overheads and low contractor overheads.

Options analysis – All potential options to initial recommended option

21. The Better Business Cases framework helped generate a list of all potential options, ranging from full insourcing to outsourcing to a single alliance partner. There were 162 potential options identified initially, which included every variant of how contracts could be delivered (i.e. the ‘dimensions’ of the contracts). The table below details the dimensions, with the actual range of options representing multiple combinations of these dimensions.

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22. Multi-criteria decision analysis has been completed with a selection of key management and specialists from across the organisation to narrow down the dimensions to the long list of five potential options. These criteria are based on achieving key objectives and critical delivery factors.

23. The table below displays the long list of options assessed.

24. From the five key long listed options assessed, only three options are proposed to be carried forward to a short list: the status quo, a strategic alliance, and modified contracts with a mix of outsourcing and in-housing. The table below assesses these options in terms of benefits and costs.

Option assessment findings

25. Through the options analysis into the contract delivery model above, staff were able to undertake an initial assessment into outcome-based contracts vs scheduled or frequency-based services. Since 2017, outcomes-based contracts have proven beneficial in several aspects of contract service delivery. These include the transfer of risk, weather impacted services and where service standards are more easily set, such as open space mowing. However, they may add complexity and higher costs in areas requiring strict compliance.

26. In contrast, scheduled or frequency-based services are seen as better for controlling predictability of service and cost and for compliance outputs like building warrant of fitness. While these contracts offer cost stability, they may lack the flexibility required for high-impact or reactive services. There is an implementation risk with this where council currently has a low inhouse understanding on frequency setting. A hybrid contract model will allow an appropriate balance between outcomes based and frequency-based service contracts to be set and further work will be undertaken on this and brought to the Committee for decision.

27. Staff were also able to assess the viability of bringing all full-facilities maintenance inhouse to be delivered. There are examples of similar parks and community facility contracts being brought in house or insourced in New Zealand and examples of this occur in Tauranga and Christchurch. Typically, this has occurred where failure of a single contractor has impacted council reputation in a region and that contractor is the only available supplier. Insourcing is considered to be cost prohibitive for Auckland Council because of the size and scale of resource required, and likely establishment costs.

28. As a result of the assessment to this point, a Public Private Partnership with a single alliance partner for all contracts is not considered viable. This option presents high risk due to council’s reliance on a single partner.

29. For the reasons outlined in the long list and short list assessment, fully outsourcing to a single supplier, or fully insourcing to council will not be progressed for further investigation. The shortlisted options identified above will be further tested through the next phase of local board engagement and initial market testing. Other options for contract delivery will continue to be analysed in conjunction with the initial recommended option to ensure that detailed options analysis is undertaken prior to committee approval in 2026.

Initial recommended contract model option for further testing

30. Analysis undertaken to date has found that the key objectives and goals may be able to be addressed by the initial recommended option of a hybrid contract model, including using diverse and local suppliers, and improvements in asset condition reporting.

31. The initial recommended option of a hybrid contract model could mean that there will be a combination of outsourced suppliers providing services through a multi-supplier contract model, but also have the flexibility to bring certain delivery of small, specific services inhouse where appropriate.

32. At this stage, it is anticipated that the model will retain outcomes-based terms where it has proven of benefit to Auckland such as open spaces and continues to use several main suppliers to enable some options and mitigate risk.

33. The model also has the ability to introduce frequency/schedule-based work to enable cost predictability in high compliance areas such as built environment and continues to use several main suppliers to enable some options and mitigate risk. Additionally, rules and drivers could be established to visibly achieve local supplier procurement and asset improvement needs.

34. The use of a mix of suppliers could also reduce supply chain and health & safety risks while encouraging competition. The larger suppliers provide surge capacity during emergencies, while over 200 subcontractors offer a diverse pool of local suppliers. The optimal size of these contracts and number of suppliers and areas will be further investigated as part of the next stage.

35. The following diagram illustrates the initial recommended option (subject to further investigation and change according to elected member feedback and market feasibility):"

Figure 3. About the initial recommended option

36. This option is at an early phase of the project and a thorough business case will be established through elected member feedback and market testing. This will allow a detailed cost-based analysis to be completed to assist decision making.

37. Most of the options, including the initial recommended option, allow the implementing of local supplier and diverse supplier procurement policies supporting our sustainable procurement. This will enable a stronger enablement of local and diverse suppliers, as well as improved transparency to local boards.

Tauākī whakaaweawe āhuarangi

Climate impact statement

38. Suppliers’ emissions are primarily a result of the combustion of petrol and diesel in the vehicles and equipment they operate to deliver the requirements of the contract. Suppliers also have a degree of control over Auckland Council’s fertilizer, refrigerants, water, open space waste and building energy greenhouse gas (GHG) emissions through their planned maintenance activities.

39. Reducing GHG emissions and delivering sustainability and environmental outcomes more generally are core requirements of the contracts. These outcomes are monitored using the KPIs, reported through the suppliers’ environment management systems, and delivered through planned maintenance and supplier operations.

40. All council suppliers have been introducing electric vehicles and equipment into their fleet to minimise GHG emissions.

41. 3All Full Facilities suppliers are reporting GHG emission data resulted from the delivery of their contract. Most Full Facilities suppliers have their own emission reductions plans/targets that align with the government requirement and have achieved a reduction in emissions from last year. Where suppliers are not achieving emission reductions, the council is working with them to help them to meet their targets.

42. The further work on options will seek no deterioration to current response and commitments of reducing our contribution to climate change. Improvement opportunities and costs will be better understood once more market pricing has been acquired.

43. New initiatives are likely to take time to imbed and performance improvements are likely to be incremental over the options tenure rather than sudden.

Ngā whakaaweawe me ngā tirohanga a te rōpū Kaunihera

Council group impacts and views

Current situation

44. The current contracts manage a range of built and open space services on behalf of Auckland Transport and Eke Panuku.

45. The further work on options will aim to preserve or improve flexibility, allowing for adjustments to future changes in scope. The cost of flexible scope/s will be better understood once more market pricing has been acquired.

Ngā whakaaweawe ā-rohe me ngā tirohanga a te poari ā-rohe

Local impacts and local board views

46. The full facilities maintenance contracts span both local and regional assets.

47. Over the tenure of the contract from 2017 there has been improvements in local enhancements, which individual Local Boards have negotiated for their area.

48. Feedback from local boards about the current arrangements has been focused on Social Procurement and Supplier Diversity. The initial recommended option enhances on the current delivery of this.

49. Local board views on options will be engaged as the next step in the process.

50. New initiatives are likely to take time to embed and performance improvements are likely to be incremental over the options tenure rather sudden.

Tauākī whakaaweawe Māori

Māori impact statement

51. The most impactful economic objectives focus on indirect spending through subcontracting opportunities with Māori and/or Pasifika-owned businesses and social enterprises. This approach aims to deliver enhanced outcomes for Māori communities in Tāmaki Makaurau.

52. The existing contract was established prior to the council’s development of a sustainable toolkit for tender and contract measures. Currently, suppliers provide some information on various metrics related to both primary contractors and subcontractors. However, these contracts lack specific targets or incentives for social procurement and supplier diversity, limiting their potential impact.

53. The new contracts will aim to have supplier diversity targets for tier two contractors. The diverse suppliers are Māori and/or Pasifika-owned businesses, or social enterprises.

54. The initial recommended option would include the ability for full facilities maintenance services to be delivered by smaller groups and the community. This includes the likes of community groups, mana whenua, iwi, local boards and schools.

55. Some new initiatives are likely to take time to imbed and performance improvements are likely to be incremental over the options tenure rather than sudden.

Ngā ritenga ā-pūtea

Financial implications

56. The financial implications for the future P27 contracts could be significant, depending on the chosen contract delivery model and the outcome of the procurement process. To provide context, the total expenditure for the full facilities contracts in FY23 2022/2023 Financial Year—including scheduled repairs and maintenance across five areas with four suppliers—amounted to approximately $165 million. However, the full financial impact of the future contracts will not be fully understood until further along in the process, once procurement has been completed and a final delivery model has been approved.

57. At this early stage of options assessment, we have conducted a preliminary analysis of the various options for the Full Facilities Maintenance Contracts. This initial analysis provides a foundational understanding that allows us to differentiate between the options based on their potential benefits, costs, and risks. While these variations are outlined, they are not yet quantified in monetary terms.

58. A more detailed financial evaluation will be necessary as we progress through the process. This will include a thorough cost-based analysis once the scope of the options has been clarified, and the procurement phase has captured price and cost data from the market.

59. The shortlisted options have identified potential cost pressures, along with associated mitigations. Given the current market conditions, it is likely that all procurement options will face increased costs compared to current contract terms. Therefore, options that support cost mitigation strategies are particularly appealing. Mitigations may include longer-term contracts and a range of operational efficiencies, both of which are highlighted as benefits in the short list. Additionally, separating the contracts into "open spaces" and "built spaces" is expected to improve contract management, supporting both performance and some degree of cost control.

Ngā raru tūpono me ngā whakamaurutanga

Risks and mitigations

60. The following risks have been identified; as this is very ealy in the project lifecycle, mitigation strategies will be developed once the program has gained enough clarity of risk. Moving to the next phase, clarification is the current mitigation strategy.

· Multi-year inflationary pressure combined with CPI cap in the contract: Risks driving up supplier pricing (market re-pricing current contracts), where tendered prices may be higher than the current contracts.

· Insufficient market interest: Resulting in low or not enough submissions and lack of competitive pressure.

· No feasible cost savings due to multiple upwards cost pressures: Focus becomes cost containment.

· After a decade with outcomes-based contracts, low inhouse understanding means council has learning curve on frequency setting: Resulting in too much cost or poor visible quality of maintenance.

· Higher cost due to council seeking greater control through new terms: new terms may include frequency based, quality assurance and utilising the subcontractor market to achieve councils goals. While this is intended to enhance accountability and service quality, it may also lead to higher supplier pricing if suppliers adjust their costs to accommodate the additional oversight and compliance requirements.

· Systems continue to remain inadequate to the task: Councils’ largest operational contract has had low ICT focus. There is high reliance on contractors ability to have technological solutions that support Business2Business efficiencies.

· Project delay: Resulting in a weakened position to negotiate from.

· Elections: Decision making spans over the electoral term.

Ngā koringa ā-muri

Next steps

61. Staff will continue to undertake further analysis into the initial recommended option, as well as the shortlisted options through local board engagement and market testing. The endorsement of the recommended option does not preclude analysis of the other options.

62. The committee will continue receive further reports on the progress of the Te Ara Hura (P27) Programme, including a report for the approval of the procurement plan in December 2025 and the recommended option in 2026.

Ngā tāpirihanga

Attachments

No.	Title	Page
a⇨	Te Ara Hura P27 Full Facilities Maintenance Contracts - Value for Money Indicative Assessment
b⇨	Te Ara Hura P27 - Assessment Appendix - Market Environmental Scan

Ngā kaihaina

Signatories

Authors

Andrew Morris - Senior Advisor

Chantelle Subritzky - Head of Value For Money

Authorisers

Taryn Crewe - General Manager Parks and Community Facilities

Max Hardy - Director Group Strategy and Chief Executive Office

Ross Tucker - Group Chief Financial Officer

Chairperson	Cr Desley Simpson, JP
Deputy Chairperson	Cr Greg Sayers
Members	Cr Chris Darby
	Cr Julie Fairey
	Houkura Member Tony Kake, MNZM
	Cr Kerrin Leoni
	Cr Daniel Newman, JP
	Cr Sharon Stewart, QSM
	Houkura Chair David Taipari
	Cr Ken Turner
	Cr Maurice Williamson
Ex-officio	Mayor Wayne Brown

Date	Subject
16/10/2024	Memo - Update on pools and leisure outsourced centre procurement

Author	Sonja Tomovska - Kaitohutohu Mana Whakahaere Matua / Senior Governance Advisor
Authoriser	Ross Tucker - Group Chief Financial Officer

Exclusion of the Public: Local Government Official Information and Meetings Act 1987