Monday, June 14, 2021

Tauranga City Council found lacking in abandoned carpark project procurement

Tauranga City Council has been criticised by the Office of the Auditor-General for its abandonment of construction of a car park building it had spent $19 million on, saying the project did not accord with good procurement or governance practice.

In a letter to the Council, the Office of the Auditor-General recommended that, as Council reviews its procurement policies and procedures and implements change in response to reviews of its processes, that it:

  • – use robust, evidence-based processes to guide decision-making, especially where there are differences of opinion;
  • – include requirements before a project starts to set out accountability and governance measures, identify key stakeholders, and establish record-keeping processes; and
  • – review its use of supplier panels.

The carpark construction was abandoned in June last year, after Council received expert engineering advice that there were serious seismic issues with the building.

“At the point the Council decided not to continue with the building, it had spent $19 million on the project. It was estimated that it would cost $9.8 million to demolish the building and restore the site,” the OAG letter to Council states.

“The Council decided not to demolish the building, and instead on 19 March 2021 it sold the site to the lead contractor for $1. Selling the unused material and structural steel and the negotiated settlement of the construction contract resulted in a final payment of $200,000 to the Council.”

“In the end, the Council will have nothing to show for the money it has spent.

“This raises significant questions about the procurement process used by the Council for the building. We decided to look into the issue.”

Since the OAG began its examination, the Minister of Local Government has appointed Commissioners at the Council. Council has also since initiated reviews of its procurement policies and practices.

“In light of these events, I considered that rather than carry out a full inquiry, this letter setting out the broad matters I am interested in, my comments about them, and some recommendations might be more useful to the Commissioners,” the letter said.

“There are some matters we have chosen not to cover – such as the cause of the failure and the selection of the structural design engineer – which the Council is considering separately.”

The OAG said there were several aspects of the project that did not accord with good procurement or governance practice.

“These included a lack of a business case or overall plan for procurement, using panel members for work for which they were not appointed to the supplier panel, focusing on price to the detriment of whether the provider could deliver the work being contracted for, an unclear purpose for the Project even after it had started, and unclear responsibilities while it was being carried out.”

“This is not what is expected when a local authority, or any public organisation, is spending public money.”

The OAG found that some tenders for the carpark project appeared to have been evaluated based only on price and without assessing the tenderer’s ability to meet the tender requirements.

“That is not to say the suppliers involved were not capable of meeting the requirements, but price was prioritised over ability when selecting the successful tender.”

After stopping the construction of the car park building, Council reviewed its procurement processes, took further advice from experts, and started to make recommended changes.

“I will be interested in what progress is made with the improvements to policies and procedures, especially as they relate to procurement. Although there is often pressure to complete projects quickly and for least cost possible, obtaining value for investments such as this one can require time, expertise, and the discipline of good procurement and project management processes,” said OAG Inquiries Manager, Dave Lemmon.

“I encourage the Council to ensure that its policies and procedures recognise this.11 The Council has been through significant change recently with the appointment of Commissioners. I hope these observations will assist them, and other public organisations, with similar projects. Given the public interest in this issue, we intend to publish this letter on our website,” he said.

“I thank the Council for the assistance it provided during this work.”

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