The Post: The dismal revelations at the heart of Wellington Water debacle

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If you have tears of rage, prepare to shed them now. This week’s reports into the Wellington Water debacle contain some of the most infuriating, dismaying and jaw-dropping details of public-sector weakness this country has seen in some time.

Owing to the deals that Wellington Water entered into with a handful of contractors, ratepayers have – according to investigations by infrastructure consultants Aecom and the business consultancy Deloitte – been paying three times more than they should for repairs. Understandably outraged, local councillors are calling for a forensic audit of any potential “price-gouging”.

The reports reveal that Wellington Water – a utility owned by the region’s councils – was far too close to, and indeed calamitously reliant upon, the contractors it was supposed to oversee.

Rather than tender each piece of work to a full field of companies, Wellington Water created “panels” of three pre-approved teams of contractors, among whom the work was allocated. A further “maintenance alliance” effectively embedded another contractor, Fulton Hogan, within the utility.

Accordingly, Deloitte found, Wellington Water focused on “trust” and “partnership” with its contractors, rather than trifling things like competitive tension. Effectively, this “prioritise[d] … consultants and contractors over ratepayers”.

And it gets worse. As Wellington Water’s new chief executive, Pat Dougherty, has admitted, the utility had “consultants managing other consultants”. Some consultant managers were – unbelievably – asked to oversee the work of their own firms.

Before seeking bids, the utility sometimes told contractors exactly how much money was available for projects. How astounded its staff must have been, then, when the bids kept coming in high rather than low!

Ominously, Deloitte also noted concerns that the main contractors were not just charging Wellington Water their own overheads but also requiring the utility to pay the overheads of sub-contractors – effectively a form of double-charging. Local councillors suspect this is happening on other big projects.

And if you think you’ve seen this movie before, you’d be right. Two decades ago, a wastewater project in Kaipara blew out spectacularly, costing locals tens of millions of dollars. One of the failure’s root causes, the Auditor-General found, was a local council so short-staffed, so reliant on consultants, that it could no longer even manage its own contracts.

Likewise Wellington Water, which didn’t have its own system for managing pipes and other assets, but instead used systems supplied by, among others, Fulton Hogan, the very firm it was supposed to oversee. This, as Dougherty told local councillors last year, became an obstacle to pushing contractors for savings: “It is a little bit difficult to have terse conversations when we are absolutely reliant on their goodwill.”

This whole sorry saga is yet another indictment of the belief that paring back public bodies generates efficiency and saves money. By rendering those bodies hopelessly dependent on contractors, it does exactly the opposite.

The hollowing-out of Wellington Water ultimately stemmed, some argue, from underfunding by its shareholding councils. But given how the utility was run, why would they have coughed up more cash?

Either way, the obvious first step for Wellington Water – and any successor organisation – is to rebuild its core capabilities, and to treat contractors not as trusted “partners” but as what they really are, profit-hungry entities to be kept on a very short leash.

Whether the utility can do so under the leadership of its current chairperson, Nick Leggett, is another question. With some honourable exceptions, strikingly few people have noted Leggett’s conflict of interest.

In his other life as the chief executive of Infrastructure New Zealand, a body that lobbies for a bigger role for its corporate members, Leggett has his salary paid by – among others – Fulton Hogan. Not only that: the board to whom he reports includes Ben Hayward, chief executive of Fulton Hogan.

Other Infrastructure New Zealand members, including the engineering firm Beca, have had contracts with Wellington Water. Yet these are the firms whose work Leggett is supposed to control.

Some minor conflicts of interest can be handled by an individual “leaving the room” during specific decisions, but in this case, the issues with contractors – Fulton Hogan in particular – are threaded right throughout the organisation.

Leggett said this week that he had been managing the conflict of interest, and he was not involved in contractor discussions. But with all due respect to him, the conflicts of interest here look unmanageable – yet another instance of New Zealand not being tough enough on such relationships.

Leggett has, to his credit, acknowledged Wellington Water’s failings this week, and is putting more work out to open tender. But this is rather late in the day. A board member since April 2022, he was present in 2023 when the utility was warned of many of the above problems but dismissed them as, in the words of its then-chief executive, “a distraction”.

In its pursuit of better value for ratepayers, Wellington Water urgently needs to reset its relationship with contractors – and to have the public’s confidence that it has done so. It is hard to see how this can be achieved by an organisation helmed by someone who is paid by, and reports to, those very same contractors.