Friday, January 8, 2016

ON THE MANGAWHAI SEWAGE SCHEME DEBACLE

This in response to a request from one of our readers.

I'll try and make it simple.   Mangawhai (pop 1329) and septic tanks don't mix so the Kaipara District Council, entered into a contract to build a sewage treatment facility at a cost of $36.5m to be funded by the local ratepayers.    Poor management of the contract saw the cost blow out to $53m with the Council eventually borrowing $62m (i.e. $9m over and above the cost of the project) and all this without reference to the ratepayers involved.

Matters came to a head in April 2012 when the Council increased rates by an average of 31% across the district and by up to 700% for some Mangawhai properties .

Two associated matters.    With the project unraveling the Council allowed their Chief Executive to resign/retire with a reported golden handshake of $240,000.   Secondly, Audit New Zealand failed to pick up on the overspend in their auditing of the Council accounts. Whether the auditors failed to ask the right questions or if the information was concealed/withheld from them remains a moot point.  

In September 2012 the Government dismissed the Council and appointed Commissioners to run it.   They remain in place.

A 400 page report by the Auditor General (Lyn Provost) had it that the Council was 'out of its depth in its handling of the project and did not understand the complexity of what it was doing'.   Further, that the 'Council lost control of the project and failed in its fundamental legal and accountability obligations'.   Ms Provost also commented adversely on the part played by Audit Department staff.

Subsequently the Mangawhai Residents and Ratepayers Assn (MRRA) sought a judicial review of various matters in the High Court.     In 2014 the Court held that the Council's decision in entering into the contract to construct the scheme, including the associated borrowing, and a later modification that increased the cost, was unlawful.  The Court awarded costs to the MRRA.

The Auditor General has now twice declined to exercise the powers conferred upon her office under Section 44 of the Local Government Act which provides for individual Councillors to become personally responsible for losses incurred by Council in certain circumstances.   Her reasoning behind the decision is here.

As it stands right now the Commissioners have instituted legal proceedings against Audit New Zealand alleging a failure of duty of care to properly carry out their auditing responsibilities and a second action against the now retired Chief Executive (of golden handshake fame).   These proceedings remain live with the issue of legal responsibility and compensation to be determined.

One can understand the angst of Mangawhai ratepayers with a multi-million dollar debt hanging over their heads clearly caused by incompetence (or worse) and outside their control.   Not sure that the taxpayer should be expected to carry the can though .... isn't that what professional indemnity insurance is all about?



18 comments:

Adolf Fiinkensein said...

I'm not sure PI cover would carry the can in a case like this where high levels of negligence and malfeasance have taken place.

Perhaps the council simply needs to default on its loans and let the equally negligent lenders carry the can. After that thee Council could declare itself bankrupt and put all it's assets on the market. In this way everybody could start afresh and ratepayers would find the true value of the assets carried on Councils books at sky high figures.

Anonymous said...

This is one of those extraordinary situations and should never have ended up at this point.
The councillors were most likely convinced by staff that the proposed scheme was the best option when clearly septic tanks and grey water disposal were better options especially now tanks and disposal methods are better designed and can be very effective..
The cost also was extraordinary and makes one think the council was having the wool pulled over their eyes with such a huge cost.
To end up with commissioners is wrong.There should have been new elections held proper representatives elected by the ratepayers.The Government is too fond of taking away democracy.
The CEO should have been held responsible and this whole episode exposed so we can all see the truth about what went on.

Adolf Fiinkensein said...

Addendum

".....carried on Councils books at sky high figures."

Which figures would have been used to hoodwink the gullible and equally culpable lenders.

The Veteran said...

Anon 8.21 ... the land around Mangawhai is not conducive to septic tanks. This issue was canvassed in Part 2 of the Auditor-Generals Report which you can access it at http://www.oag.govt.nz/2013/mangawhai/beginning.

When a Council is found to have been acting incompetently and illegally then the appointment of Commissioners is the right and proper thing to do while the mess is being sorted out. New elections may have exacerbated the problem ... just who would have wanted to stand and be tarred with having to take unpopular decisions. A new Council needs to start with a clean slate and not be burdened with having to clean up the shit left by its (fired) predecessor.

I agree this was an extraordinary situation requiring extraordinary measures.

Adolf ... anyone lending money to TLG have a right to expect that the loan(s) are properly secured ... that's why lending is at preferential rates. Legislation does not allow a Council to declare itself bankrupt as a way of repudiating debt.

Anonymous said...

I have learnt two things from this post. None of these Councillors ever voted Labour or even been seen wearing an article of red clothing otherwise the headline would have been " Labour screws up again."

The other is that the Island mentality seems to have permeated the local thinking and absolutely no research has been done. If you want to put a man on the moon you contact the experts in the US, if you want to integrate your cities transport systems you ask the Germans and if you want to know about septic tank systems (Fosse septique)
you ask the French. There is no such thing as unsuitable land as polyprop tanks ranging from 5 cubic metres to 30 cubic metres are made. And as millions of homes line the banks of the great rivers Loire, Rhone Vienne etc they are really hot on compliance and pollution.

So much so that below ground burials of humans or animals are forbidden on flood plains or river valley slopes. Who conducted the feasibility study and what is their relationship to the main players in this farce? The stench of mendacity is in the air.

There is NO SUCH ANIMAL as unsuitable ground for a modern septic tank if the ground is suitable for supporting a building.

http://www.brittany-internet.com/BrittanyNews/SepticTanks/tabid/174/Default.aspx

Lord Egbut

Anonymous said...

If the council was ripped off by the contractor (as appears to be insinuated) who was the contractor?

The Veteran said...

Egbut ... not overly helpful comments. I have absolutely no the political persuasion of the elected members involved. Clearly you don't know the NZL local government scene too well because, unlike the UK (and with the exception of our four main cities), most people standing for election do so under their own name.

As for your second point and again, all I can do is to refer you to Part 2 of the Auditor-Generals report. Question ... are you suggesting she wrote the report off her own bat without seeking professional engineering advice. Perhaps you should write and put her right.

Anon 8.45 ... the KDC decided to use a 'design, build, operate and finance approach' to the project. Three companies were short-listed with the contract awarded to Earthtech Engineering Ltd with the financing coming from a company owed and operated by ABN Amro NZL.

Anonymous said...

I suspect it may have been different if you did have some idea of the political persuasion of the Councillors.

The web address you gave seems to have been taken off as I can't find the Auditors report (part 2) guide me.

I am suggesting that the engineering advice was wrong or based on 1960's engineering practices. Above ground, below ground or in between it doesn't matter. There is no place you cannot put in a modern self contained sewage system. given the amount of money that went down the tubes you could have gold plated them for each resident.
Follow the money.

Lord Egbut

The Veteran said...

Egbut ... go to the link and then scroll down to the section headed 'Part 2 - Did Mangawhai need a Wastewater Scheme'.

Anonymous said...

Thank you for your review. The ultimate insult to the ratepayers is of course the fact that the scheme they "bought" for this obscene $62m is under capacity for the 1600 connections that have already been made, and this is only a fraction of the number it was developed and paid to service (around 4500).

The Kaipara DC of course is not a member of the Local Government Funding Agency, where the debt of every member council is cross-guaranteed by all the other member councils. Ironically KDC is not a member because their level of debt is TOO HIGH to be considered for membership. But Auckland CC is of course, so when the council there is bankrupted by the Rail Loop boondoggle ($5 - 7 billion I predict in total), the rest of the NZ member Councils will bail them out.

My greatest regret so far is the hope I held that Paula Bennett, when she was appointed Local Government Minister, would sort this situation out. Her only contribution however was to sidestep the whole issue, send Loiuse Upston in as Associate Minister, and basically wash her hands of the whole farce that has developed.

There are still many skeletons in cupboards, and large bodies under carpets in Mangawhai, and probably a community that will never recover from the injustice that has been heaped on them. I am surprised that so few people in the rest of the country seem at all bothered about it (apathy?). It may still emerge as a nasty stain at the next General Election (2017), especially if there is a possibility that ratepayers in the Greater Northern District Council get caught up in the debts.

MarcW

The Veteran said...

Marc W ... thank you for that. The judicial proceedings will run their course and, until that result is known, I guess nothing much will change.

Whatever that outcome and I guess the start point for me is the difference between the original contract price of $36.5m and the $62m borrowed = $25.5m. Whether this can be recovered in whole or in part from insurers (Audit NZL and KDC) will depend on a range of factors linked to the outcome from the judicial proceedings where the level of proof is the civil standard i.e. on the balances of probabilities. That should be of some comfort to MARA although I suspect they will argue the whole $62m is on the table.

As I said in my post, I'm not sure that central government (the taxpayer) should necessarily pick up the can for a Council gone rogue.

On a personal note perhaps I can say 'there but for the grace of God go I'. When I left the military I commenced a second career in LG. In 1989 I was shortlisted for appointment as CEO of the KDC but lost out to my colleague mate from Morrinsville (who unfortunately died a short while into his tenure).

Anonymous said...

Thanks for the contractor and financing details. The various ABN Amro records, such as they are, look a bit obscure or distant for the council to have dived into bed with. There may be good reasons for the arrangement of course but it doesn't look a "comfortably" local arrangement and I'm not sure why you'd go that way, if in fact they did, to finance what is a relatively small amount in absolute terms. I hate to be cynical but when you have an alleged shambles of this size its my default position. Did any of the background contractual arrangements come under scrutiny in the court proceedings?

The Veteran said...

Anon 8.40 ... not for the faint hearted but the 400 page A-G report can be accessed at http://www.oag.govt.nz/2013/mangawhai/docs/oag-mangawhai.pdf

Marc W may be in a posn to advise whether the contractual arrangements featured in the High Court proceedings. I haven't read the entire judgement ... only the summary.

Anonymous said...

It is as I thought, like all sagas it has a beginning and the beginning was the initial survey based on seepage of 20 and 30 year old concrete systems and shellfish testing.

The fault lays with the company who conducted the survey based on what was there and suggested no alternatives. The second mistake was not researching the alternatives.

Lots of stuff available including this company products which can discharge directly into rivers and can service one or ten properties or an entire military base. Yes it may have worked out too expensive but I bet no one looked.

Go to FAQ's http://www.station-depuration.com/en/

As you mix with the great and the good Veteran perhaps you could point out the shortcomings to the "Yes Ministers".

Lord Egbut Nobacon

Anonymous said...

Back of a fag packet maths. 4500 residences in the catchment area. Cost of purchasing and shipping a modern odourless polution free waste system (2m x 2,90m) that meets all EU specs. for each house $20,000,000.

If you take into consideration that a large percentage of existing systems are non polluting and will meet current regulations, many houses that are close together can be connected to a communal system it would not even get close to that figure. A three yearly pump out and maintenance could be included in the rates and be almost unnoticeable. That gives council control over regular pump outs that were a concern to the people who conducted the survey. A percentage of installation cost would be paid by the residents as it adds value to their property. Just a thought!

Lord Egbut Nocbacon

Noel said...

You are forgetting political spin.
In 2003 they had one of those 100 year rain events resulting in new builds requiring surge tanks attached to their stormwater discharge. I asked the local elected representative would that mediate any future event of the same magnitude. He said yes. I said how, because the ruling didn't apply to property existing at the time of the flood. At that point he made his excuses to leave.








The Veteran said...

Egbut ... you may or may not be right but all this hindsight counts for nowt when you have to deal with the here and now and that's the problem faced by the residents.

One of my mentors in TLG a third of a century ago was a self-made millionaire. His rather cynical view was that most of his elected member colleagues could relate to $100 because that's what they knew; that they could contemplate $20,000-$50,000 because those were mortgage numbers but anything over $100,000 and their eyes went glassy. Members spent more time arguing over the quite modest entertainment budget than they did for major capital works where they inevitably deferred to professional advice. The other thing I learnt was that put two engineers together and they would come up with two quite different solutions to the same problem.

If in any enterprise you get the governance model wrong then disaster will follow as sure as night follows day. In KDC's case it's a long winters night.

Anonymous said...

I concur, more time at school governors meetings were spent on on discussing a new bike shed than a new central heating system. Why..because every Kiwi man new about basic building and was anxious to show off his knowledge.

It has happened in the past and will happen again when the decision makers defer to one opinion from a company that is on the "list". A degree from a university is no guarantee of common sense.

However in the words of David Cameron during the last UK floods in 2010 "We will learn from our mistakes" Duh no

Lord Egbut