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WWT System Statement of Proposal


WWT System Statement of Proposal

25 June 2020

Kia ora tatau. I appreciate this opportunity to further develop my preliminary submission dated 17 June, which I assume you have read.

In the week since my preliminary submission I have asked for feedback from the public. The feedback has caused me to reflect critically on my preliminary position. Nine issues have been raised and are now offered to encourage further discussion towards achieving informed public policy on wastewater system management.

First, I did not realise how divisive some folk see the outsourcing of management, and how they value being self-reliant as a community that owns its own responsive local government services.

DG asked “Why do they persist with corporatizing? The whole motto of “we together” is being made a mockery of. This infrastructure, if maintained and developed right, will last generations. Therefore, borrowing money to improve, maintain etc. is far less risky than some of the other projects which have/had no foreseeable pay back or benefit for locals. This is core Council business. At what point is it so outsourced that we don’t require a Council department?

Second, I need to consider that some folk are deeply concerned about how outsourcing the management of the WW system will undermine progress across our district.

Another DG argued that “it just takes away from local opportunities. These companies more than likely won’t employ a local to run their operation. They won’t pay top dollar as that’s how they keep their profit.”

Third, I under-estimated the importance of links between internal capability, public accountability, effective government procurement and the two-edged sword of profit.

RW, a retired local builder advised that “Outsourcing any publicly owned facility is a nonsense, and is only promoted by paid officials to remove their responsibility of having to understand, or are indeed lacking themselves the expertise to successfully manage a business paid for and entrusted to them … Its impossible to be more economical to outsource when the material costs, by way of bulk New Zealand-wide government-assisted tenders, are less than a contractor can possibly buy at. With Council buying there is no profit margin added … The only profit that can be gained is sending a percentage of staff down the road yet holding the current labour man-hours constant …and screwing the Council at a later date for cost increases and contract upgrades.”

Fourth, my preliminary submission failed to connect the dots between the limits of outsourcing management and the longer-term impact of Covid-19 on our economy.

BS, a retired investment banker, explained that Trility is a HK company of investment bankers [owned by Beijing]. “They are not infrastructure engineers. Their interest is to minimize costs and maximise profit in the next 10 years … In a 5 year period, [Trility’s] net profit varied between 16.5-19.9% of their revenue. Taking the [proposed] Rotorua contract as an example, it means that between $2.5 million to $3.1 million will end up in Beijing-HK as net profit each year. That could stay in Rotorua to either reduce rates, or inject into the local economy. … I DON’T accept if they say they are committed to support local business. I am pro China, this is NOT my issue. I’m pro Rotorua, but I’m seeing revenues and profits from parking, rubbish collection, construction contracts, and now STP going outside. With the demise of tourism, we should ensure every last dollar and cent stays local.”

Fifth, my preliminary submission under-estimated the reputational damage being done to Council by the proposal in some quarters.

AS-H noted that “This is one of the few key services the council has to provide. Why on earth are they thinking of contracting it out? Contracting out means to a company that has to make a profit, which means the cost to the ratepayer will go up. Is it that they don’t give a crap about the ratepayer, or is it they can have a contractor to blame when something goes wrong?

Sixth, I was reminded that I need to think more about the potential permanence of the proposed changes, how they relate to Council’s primary purposes, and the social contract between Council and our people.

JG pointed out that ““””’Once the in-house expertise has been transferred to a third-party corporate there is no going back.”

TT warned that “Rotorua Essential service will end up holding Rotorua ratepayers to ransom by private contractors. Rotorua Council’s core business is services to the people. Not for profit.”

RW asked “What’s next. Freshwater?”

Seventh, I was reminded of the need for a comprehensive strategic evaluation of the quality of governance and corporate leadership that will be needed to support outsourced management.

RS noted that “It is astonishing that this Council finds that it does not have the capability or capacity to manage the wastewater system. This is surely core business for any council. In building the system in the first place, then being responsible for maintaining it, since the Council staff involved must have built up considerable and valuable institutional knowledge. I can’t see how losing control of the system, and the ongoing institutional knowledge in the process, is good for the citizens of Rotorua. Surely the Council is in the best position to continue to refurbish, develop and maintain the system rather than an outside contractor.”

Eighth, it became clear that I need to rethink effective contracting for the long term.

RS argued that “It will be challenging to accurately define the scope of the work for the contract over its period. There will inevitability be many unforeseen costs which will push the price out over the period of the contract and may well result in expensive litigation … it appears that it is a convenient solution to previous short comings of the Council’s governance. Recent commentary by both the Mayor and the CEO strongly indicate that this Council has no real focus on cost control or a belief that they can do better with what they have ….

What happens when the contract expires? By then the council will have much less capacity/capability to take back ownership so will have fewer options and be in a weak position to negotiate. This will potentially result in even higher costs in out years. Corporates are required to make a profit for their shareholders so surely the Council can provide the same for less and without the considerable risks associated with outsourcing.”

Ninth, and finally, it was helpful to reminded that we are an innovative people capable of accepting wastewater management challenges.

BS pointed out that “I deal a lot with China and don’t see a major concern about the CCP. I don’t think they will be analysing your DNA in test tubes. But remember, [this proposal means that] we will pay them $15.6 million a year and they will pocket a nice profit, as much as 20% before tax. They are smart investors. I can’t however accept we need to outsource basic infrastructure overseas when we can do it ourselves. Saying we can’t is an insult to the engineers and operators of New Zealand. If we can put rockets into space we can process poos.”

Overall, while much of my preliminary submission has endured public scrutiny, my thinking clearly must now move on to take better account of nine open issues:

  1. ‘We together’ means defaulting to local ownership?
  2. Outsourcing undermines progress as a community?
  3. Capability, accountability, procurement and profits interdependent?
  4. Limits of outsourcing related to longer-term impact of Covid-19?
  5. Reputational damage being done to Council by the proposal?
  6. Permanence serving purposes and social contract with our people?
  7. Quality of governance and corporate leadership available?
  8. Detail needed to ensure effective contracting?
  9. Capacity to innovate?

I look forward to further advancing my learning with your questions and discussion. Thank you.

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