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Revenue, Expenditure and Value Committee
18 February 2025
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Better Value
Projects - update and programme scope
File No.: CP2025/00667
Te take mō te
pūrongo
Purpose of the report
1. To
update the Revenue, Expenditure and Value Committee on the Better Value
Projects programme which is the scope of activity underway that responds to the
direction regarding procurement and effective spending improvements set by the
Budget Committee as part of the Annual Budget 2025/2026 process.
Whakarāpopototanga matua
Executive summary
2. Reflecting
concerns expressed from both the public and elected members, the mayoral
proposal for the Annual Budget 2025/2026 called for change to how we procure
and effectively spend ratepayers’ money, particularly on capital
projects. The mayoral proposal challenges the council group to:
· deliver
right-sized and cost-effective investment that responds to the problem being
solved or the number of people that will benefit
· be
able to ‘proactively’ respond to technological and societal changes
that impact how the public use our services and/or infrastructure
· make
our processes more effective and efficient so that suppliers find us easier to
work with and costs are minimised
· measure
success of investment delivery on the value or outcomes achieved rather than on
the level of capital budget spent.
3. The
mayoral proposal noted that the chief executive has acknowledged these
challenges and established a small team to drive improvements across the group.
An expectation was set that improvements in this area should be reported to the
Revenue, Expenditure and Value Committee by March 2025.
4. In
response to the mayoral proposal, the Budget Committee requested that the chief
executive provide further advice on an updated approach to group procurement.
5. This
report provides an update on the scope of the procurement and effective
spending improvements programme that is being explored under the chief
executive’s instruction, with this programme currently being referred to
as the Better Value Projects programme. It sets out the process staff will
follow, key areas of focus and the next steps for reporting progress to the
Revenue Expenditure and Value Committee from March 2025.
6. To
provide structure and focus to this programme, staff are currently organising
their work around ten key propositions. Making change in these ten areas will
make the biggest difference to improving the value that ratepayers receive from
the council procuring and delivering capital projects. Work is underway to
validate each proposition, and then design and implement the process changes
that will make the biggest impact in each area. There are known quick wins
which are being progressed now. The ten propositions are:
· Increase
use of standard designs
· Factor
in past supplier performance
· Setting
maximum prices
· Focus
on local suppliers
· Streamline
processes and remove barriers
· Early
problem definition and robust value assessment
· Rightsizing
our investment
· Manage
consultation and consultancy carefully
· Independent
assessment
· Continuous
value assessment
7. In
progressing this programme, we need to make sure that the improvements are
practical and informed by learnings from real world case studies. Changes will
need to be implemented in a way that does not impact our ability to get on and
deliver for Auckland.
Ngā tūtohunga
Recommendation/s
That the Revenue, Expenditure
and Value Committee:
a) tuhi
tīpoka / note that the Mayoral Proposal for the Annual Budget 2025/26
identified improving how Auckland Council procures and effectively spends
ratepayers’ money (particularly on capital projects) is an area where
change is needed and that improvements in this area should be reported to the
Revenue, Expenditure and Value Committee by March 2025.
b) tuhi
tīpoka / note the Budget Committee on 4 December 2024 as part of the
Annual Budget 2025/2026 process resolved to request further advice in 2025 on
an updated approach to procurement as outlined in the Mayoral Proposal
(Resolution BCCCC/2024/14).
c) tuhi
tīpoka / note that staff are providing this preliminary progress update
ahead of the March date set out in the Mayoral Proposal.
d) tuhi
tīpoka / note the Auckland Council Chief Executive has established a
programme to drive improvements in procurement and effective spending known as
the Better Value Projects programme
e) tuhi
tīpoka / note the scope of the Better Value Projects programme outlined in
this report
f) tuhi
tīpoka / note that staff will continue to report to the Revenue,
Expenditure and Value Committee from March on progress with this programme
including reporting on the how insights from the analysis of case studies of
identified projects will inform process improvements.
Horopaki
Context
8. The
Auckland Council group (council group) has $39 billion of capital expenditure
planned over the first ten years of the long-term plan. We must get value for
money from this expenditure, so that our resources will go further, and we can
deliver more for Aucklanders.
9. The
council group grapples with concerns expressed by the public and elected
members about spending quality and confidence in our ability to focus
effectively on value for money. High inflation and interest rates over recent
years have contributed to affordability challenges and cost of living pressures
for Aucklanders further impacting the acceptability of council spending.
10. Increasing trust
and confidence that we are delivering value for current and future residents is
a key goal within our Financial Strategy contained in the Long-term Plan
2024-2034 so it is essential that every dollar we spend provides value for
money.
11. On 4 December 2024,
the Budget Committee considered the mayoral proposal as part of the 2025/2026
annual budget process. Reflecting the concerns expressed from both the public
and elected members, the mayoral proposal specifies that improving how we
procure and effectively spend ratepayers’ money (particularly on capital
projects) is an area where change is needed. The challenge the mayoral proposal
sets is outlined in paragraph 2.
12. The chief executive
has acknowledged these challenges. A small in-house team of senior leaders has
been established to drive improvements across the group. An expectation was set
that improvements in this area should be reported to the Revenue, Expenditure
and Value Committee by March 2025.
13. The mayoral
proposal further noted the expectations of this work to include:
· asset
management improvements
· introduction
of minimum viable solutions
· review
of council group design standards
· streamlining
end-to-end capital delivery and procurement processes
· limiting
the use of design consultants in the project initiation phases
· exploring
opportunities to procure from local suppliers and the role of local boards
· measuring
and monitoring the effectiveness of expenditure
· making
greater use of business casing and cost benefit analysis.
14. In response to the
mayoral proposal, the Budget Committee requested the chief executive provide
further advice on an updated approach to group procurement as outlined above
(Resolution number BCCCC/2024/14).
15. This report
provides an update on the scope of the procurement and effective spending
improvements programme that is being explored under the chief executive’s
instruction, with this programme currently being referred to as Better Value
Projects. It sets out the process staff will follow, key areas of focus and the
next steps for reporting progress to the Revenue Expenditure and Value
Committee from March 2025.
Tātaritanga me ngā
tohutohu
Analysis and advice
16. Through the
Long-term Plan 2024-2034, council has already implemented new mechanisms for
controlling and prioritising our expenditure and increasing transparency and
financial accountability. These include:
· Fixed
nominal baseline budgets: initial assumption of no increase to operating
budgets from the preceding year. This encourages the council group to continue
to seek out savings to offset the inflationary cost pressures they are facing.
This approach is already being used in developing the Annual Plan 2025/2026.
· Advice
on new expenditure: All advice to elected members on spending decisions
will seek to weigh costs and benefits and be subject to contestable advice
(i.e. advice provided to elected members which is separate from the department
asking to spend the money). This includes understanding and assessing
non-financial benefits and taking a whole of life approach to costs and
benefits. For higher value expenditure full business case applies.
· Transparency
and financial accountability: The council will report financial and
nonfinancial information (such as services or deliverables) for each area of
the group. The council has a programme in place to make this information
available to elected members and participate in a programme of regular reviews
through this committee. This has been implemented for the Long-term Plan
2024-2034 and the Annual Plan 2025/2026 processes with the provision of service
profiles for all areas of the council and council-controlled organisations
(CCOs).
17. The work of the
Better Value Projects programme is currently underway and will complement these
practices by investigating, designing and implementing process improvements
specifically focused on how the organisation procures and delivers capital
projects (as well as some opex projects). The scope of the programme reflects
the matters from the mayoral proposal set out above, as well as additional
ideas that been put forward by relevant staff from across the organisation.
18. Some of the key
observations that have emerged from the cross-council team’s work so far
include:
· quick
wins have been identified that will be implemented in the short term without
creating risk to medium to long term initiatives
· there
is an opportunity to test new ways of working in a local government shared
governance context and these will be explored
· the
role of Local Boards in commissioning capex programmes is an important factor
in understanding process and delivery improvement
· the
Group Procurement Policy is also a mechanism to drive change, alongside the
development of Group Guidelines to support practice
· there
are a range of complex drivers of the current outcomes and there is no one
“silver bullet” to address the problem. Making a significant
difference will requires a mix of solutions working together to address the
various issues
· there
are some key barriers and constraints that are currently preventing better
outcomes and addressing these will make a big difference
· there
are many examples of both good and bad projects outcomes across the council
group, and invaluable lessons to be learnt from those examples.
19. To provide
structure and focus to this programme, staff are currently organising the
programme around the ten propositions set out in Table 1 below. It has
been suggested that making change in these ten areas will make the biggest
difference to improving the value that ratepayers receive from the council
procuring and delivering capital projects. Further work is required to validate
each proposition, and then design and implement the process changes that will
make the biggest impact in each area.
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Table 1: Ten work
programme propositions
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Proposition
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Description
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Increase use of standard designs
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Increase
the use of standard, repeatable or modular designs, including for frequently
required infrastructure such as stairs and toilets.
Standard
designs are useful cost savers as designs do not need to be replicated again
and again and design elements can be replicated with small changes if not fit
for purpose.
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Factor in past supplier performance
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Strengthening
supplier performance management in contracts, including factoring in
evaluation of past supplier performance in recommended award of future
contracts, frequency of variation requests or scope changes, and costs
increases due to over-specified designs.
Ensuring
that a contractor’s past performance is assessed so that high
performing suppliers can be reused and low performing suppliers are not.
A new
contract management module being implemented (go-live planned for 31 March
2025) as part of the Source to Contract system will help support this.
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Setting
maximum prices
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Explore
whether having a maximum project price envelope inform the design/scoping
phase can help manage higher than expected costs emerging through procurement
processes. This needs to be supported by increased maturity in our supplier
relationships and better communication and transparency around our project
budgets and affordability with our suppliers.
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Focus
on local suppliers
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We are
working to test and evaluate the use of smaller and more local providers to
establish cheaper approaches to aspects of our capital programme delivery. In
addition, approaches to driving more value through our larger suppliers,
through levers like pricing transparency are being evaluated. This works
aligns to both the Group Procurement Strategy review and renegotiation of P27
‘Te Ara Hura’ full facilities maintenance contracts.
Amotai
focuses on supplier diversity which includes Māori and Pasifika
businesses. They have a proven track record for meeting value for money
criteria and identifying what is working well.
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Streamline
processes and remove barriers
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Our own design standards,
compliance requirements, risk management and resource consent conditions and
processes can add cost and time and reduce value unnecessarily both for
ourselves as council and our suppliers. We are already starting to challenge
and streamline these requirements across the council group.
Our
design standards and design review processes are being reviewed to ensure
that we do not lose sight of a functional outcome that delivers on core
requirements rather than all of the 'nice to haves'.
Some
compliance elements are more difficult to change and may require a wider
approach to reform.
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Early problem
definition and robust value assessment
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All projects need to have
a clear problem definition statement and a robust value assessment before any
substantial design work is undertaken and before commissioning or procurement
work. Sometimes the outcome of this may be that nothing is required to be
procured.
Whilst value assessments
are already part of the required process, we should take the opportunity to
ensure their reliability and robustness by not committing to significant
amounts of spending until we have clear answers to questions such as:
· do all relevant stakeholders agree what the problem is
we are trying to solve?
· what will it cost to build and maintain (whole of life
costs)?
· have we got acceptance on the costs and benefits from
the stakeholders?
· are there non-built solutions (e.g. demand management
or optimisation of the existing system) as a more efficient alternative to
new capital spend?
· what value/output will it bring?
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Rightsizing our
investment
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Using the following
approaches to apply sufficient rigour to our investigation, scoping and
design work to avoid unnecessary cost:
· using the notion of ‘minimal viable
product’ (including do nothing) in our approach to enable the
identification of any aspects of scope that exceed the minimum, including our
assumptions on future demand. Minimum viable products will need to reference
resilience, design life and criticality and will vary across different asset
classes and may not be appropriate in every scenario. To be applied
generally, minimal viable products should be integrated into asset management
planning.
· explore philanthropic, corporate sponsorship and
community fundraising to pay for additional costs beyond the "minimum
viable product" funded by the council.
· as part of a procurement plan options assessment,
consider increased use of design and build contracts before procuring an
engineer or architect for a project, particularly where functionality is more
important than achieving the highest possible design quality and a high
degree of cost certainty is wanted. Need to identify project(s) to apply this
contract approach to as a pilot that we can learn from.
· options for delivering the outcomes of a project need
to be considered as part of business cases, with a particular emphasis on the
identification of low/lower cost alternatives that still achieve at least the
core elements of a design solution. Whole of life costs and clear benefits
(supported by a cost-benefit analysis where required) are important here.
· design our tender documents and supplier selection
methods so that tenderers are invited and incentivised to submit bids,
including alternative bids, which can achieve our functional requirements
more cost-effectively, even if they do not strictly conform with our other
specifications. We need to invite tenderers to challenge us more and
incentivise consultants and contractors to provide cheaper solutions and/or
value for money elements/options.
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Manage consultation and
consultancy carefully
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As well as better control
of the early commissioning and scoping aspects of projects, we need to
carefully manage the impact of engagement processes, community aspiration,
architectural flair and design, and consulting inputs that inflate scope and
costs, as design proceeds.
At inception, projects are
often quite functional but then as they go through subsequent processes,
'extras' are often added, and the final project can be quite different from
the starting point. We will look to manage this through:
· using our internal staff capability for a greater proportion
of design and project work instead of consultants. This may involve
increasing the amount of internal resource, to reduce our reliance on more
expensive, external capability. Linked to this, we should also review our use
of quantity survey (QS) resource, both internal and external as well as the
intellectual property that we have built up in this regard in relation to
other capital projects.
· using local board plans, annual planning and concept
planning processes (that are already in place and have been consulted on) and
keeping further engagement and feedback opportunities to essential
requirements. Consideration of the multiple stakeholders within our complex
local government setting (i.e. local boards, ward councillors, management,
iwi/ mana whenua) will need to be worked through.
· constraining the use of professional services to a
necessary minimum.
· establishing regular key supplier/partner briefings
where senior council leaders are able to communicate our expectations (e.g.
the need to show value for money for every ratepayer dollar; move toward
minimal viable products with
low operational, maintenance and ownership
costs for the council) and their opportunity face-to-face and then ongoing
communication to reinforce. Focus initially on Tier 1 and Tier 2 suppliers.
Auckland Transport have a model in place already for this: bi-annual ‘Partner
Briefings’, that could be replicated by council.
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Independent assessment
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The group budget
responsibility and transparency rules included within the Long-term Plan
2024-2034 require all advice to elected members on spending decisions to
include contestable advice. The council has introduced further independent
reviews of business cases for projects or initiatives with an expected
cost/investment of $5 million or more, commensurate with its risk profile.
Group Strategy and Financial Strategy who are independent from the
development of this advice will report (by way of separate commentary)
outcomes of their independent review within decision reports for management,
committees and boards. Where projects are part of a broader programme, then
the investment decision can sensibly be based on the whole programme.
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Continuous value
assessment
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We have a professional
obligation to assess value at all stages in the life cycle of projects. And
more so, if there are any question marks about cost, and value - or even if,
on balanced judgement, there might be a basis for public criticism of project
costs staff can and should escalate a go/no go decision to committees or
local boards to ensure governors are aware of concerns and so
commitments/contracts are subsequently entered into with political
endorsement - or stopped and revisited if elected members agree with those
concerns. This may involve revisiting cost/benefit analysis that has been
undertaken earlier in the project lifecycle.
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20. This
is not about applying a one-size-fits-all approach as it is recognised that
some of these measures might work well for some asset classes and not for
others. The complexity in our capital works project commissioning, design,
procurement, stakeholder management and governance reflect that each asset
class portfolio has its own considerations, cost drivers, risks and challenges
that need to be considered as we work to investigate implementation of these
approaches.
Tauākī whakaaweawe
āhuarangi
Climate impact statement
21. Throughout its
lifecycle, capital infrastructure is a significant contributor to greenhouse
gas (GHG) emissions in Tāmaki Makaurau. Infrastructure has an important
role to play in the transition to net-zero emissions by 2050, particularly when
we consider the whole-of-life GHG emissions of infrastructure assets.
22. The council’s
goals around emissions reduction are beginning to influence all our
infrastructure investment decisions. For example, reducing greenhouse gas
emissions is a criterion in the Investment Impact Assessment (IIA) process that
informs the development of the long-term plan and annual budgets.
23. Emission reduction
also has been weighted highly in the investment scenarios that have informed
the council budget decisions since 2022 and is becoming a priority within the
council business case development. It is also part of the sustainable
procurement framework, and the procurement policies of council-controlled
organisations, and should be considered as part of all of the council
procurement decisions.
24. Greenhouse gas
emissions reduction needs to inform investment decisions more strongly. The
consideration of greenhouse gas avoidance and reduction in investment decisions
has started but needs to be built into more of the council’s systems
before it becomes business as usual. Making better investment decisions will
mean that the council will have to understand both whole-of-life emissions as
well as whole-of-life costs and benefits and use these to inform
decision-making.
Ngā whakaaweawe me
ngā tirohanga a te rōpū Kaunihera
Council group impacts and views
25. All
council group entities (excluding the Auckland Future Fund) currently deliver
capital projects and in doing so, we have an obligation as a group to get value
for money from this expenditure. Whilst the initial focus of this work is on
the council organisation, any improvements and lessons learnt will be able to
be shared with or informed by the CCOs as well as inform the implementation of
the CCO reform programme and group shared services.
26. In addition, we
will use group mechanisms such as the Group Procurement Strategy and policies
and projects where both Auckland Council and CCOs contribute to the overall
project deliverable to implement better value across the council group.
Ngā whakaaweawe
ā-rohe me ngā tirohanga a te poari ā-rohe
Local impacts and local board views
27. Local boards
commission a significant capex programme. Spending and delivery to support
local board programmes are included in the Better Value Projects initiative as
we need to ensure that all our capital expenditure is sensible and justifiable.
We need to ensure that improvements we take forward recognise the variables
relating to who the decision-maker is.
28. In addition, we are
looking to accelerate work to test and evaluate the use of smaller and more
local providers (strongly advocated for by local boards) to establish if there
are cheaper approaches to aspects of our capital programme delivery.
Tauākī whakaaweawe
Māori
Māori impact statement
29. Mana whenua have
described[1]
council’s current relationship model as transactional with a focus on
delivering projects and programmes of work rather than building strong
relationships with Māori. Council continues to work with mana whenua to
ensure efficient and meaningful engagement that leads to projects that have
benefits for both mana whenua and the wider community including value for
money.
30. When
mana whenua are involved in project design from the outset, it creates a number
of benefits including agreed standardised designs, designs that are sensitive
to the cultural landscape and in some instances opportunities for Māori
and local businesses through our procurement processes. However, meeting our
obligations to mana whenua can in some instances have time and cost
implications for project delivery.
31. Any
proposed changes to procurement and delivery processes will need to carefully
consider this dimension as they are developed. It is likely that for the
council to improve both value for money outcomes and outcomes for Māori,
high-quality engagement with mana whenua early in the project scoping and
problem definition phase will be critical.
Ngā ritenga
ā-pūtea
Financial implications
32. Improvement
of our procurement and capital delivery processes is expected to result in
improved value for money for Auckland ratepayers. Reducing the number and size
of capital project costs overruns will also reduce financial risk and help
improve the council’s financial resilience.
Ngā raru tūpono me
ngā whakamaurutanga
Risks and mitigations
33. Key risks and
mitigations for the Better Value Projects programme include:
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Risk
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Mitigation
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Lack of resource, focus
or appropriate direction/oversight to implement meaningful change.
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The programme is supported
by a dedicated programme manager, a steering group of relevant senior
managers and executives, direct oversight by the Chief Executive and
bi-monthly reporting to the Revenue Expenditure and Value Committee.
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Implementation of
significant changes to how we procure and deliver capital projects could
cause disruption that slows down inflight projects, increase costs due to
delays and/or negatively impact the delivery of projects that are important
to Aucklanders.
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The programme will apply
careful change management and the use of pilot initiatives in instances where
immediate system change might create too much disruption.
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Implementation of
‘one-size-fits-all’ approaches negatively impact the procurement
and/or project delivery of certain asset classes.
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The programme recognises
that each asset class portfolio has its own complexities, cost drivers, risks
and challenges that may require a more targeted approach to achieve desired
improvements within this programme. This will be considered through careful
programme design, testing and validation informed by subject matter experts.
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Some system changes
such as bringing capability in-house that is currently outsourced or changing
how some procurement and project related functions are currently delivered
could require organisation change.
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Any such organisational
changes would be carefully managed in consultation with relevant staff.
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Ngā koringa ā-muri
Next steps
34. Bi-monthly
updates on progress with the Better Value Projects programme will be provided
to the Revenue, Expenditure and Value Committee. The first of these updates
will be in March and will include analysis of case studies on individual
projects where there are learnings for improving project delivery outcomes.
35. These
case studies will identify the issues, root causes, learnings that can be
applied/addressed and any recommended improvements for implementation as part
of the Better Value Projects programme. Future meetings will include learnings
from further case studies and deep dives on progress with particular activities
and process changes arising from the programme.
Ngā tāpirihanga
Attachments
There are no attachments for
this report.
Ngā kaihaina
Signatories
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Authors
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Kerri Foote - Investment Area Lead, Well-managed Local
Government
Mike Lichtwark - Executive Officer, Group Finance
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Authorisers
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Lisa Tocker - Executive Officer CE
Ross Tucker - Group Chief Financial Officer
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