Independent review and organisational improvements
In July 2024, we released the final report into an error that Wellington Water made in the budgeting advice for our councils’ 2024-34 Long-Term Plans.
On this page you will find information about the review, its findings and recommendations, and what we are doing to improve the organisation.
Through these improvements, more information about how our consultants, contractors and suppliers are being managed and their costs has come to light. You can find more information below on this, and what we are doing to achieve value for money for ratepayers.
Background
In May 2024, the Board and Wellington Water’s shareholding councils were informed of an error in the budgeting advice we provided to councils for their Long-Term Plans. When undertaking this work, we did not correctly apply the corporate cost to parts of the capital programme for the first three years of delivery. The corporate cost is an essential charge that covers Wellington Water’s overhead costs, which includes project and corporate support.
The error has resulted in a gap of around $51M across a regional programme of $900M.
We acknowledge that this does not meet the expectations of our councils and communities and on 24 May 2024, we made a public apology for this error.
In response to this, the Board immediately decided to launch an independent review into the causes of the error, provide reassurance regarding the robustness of our ongoing budgeting systems and processes, and implement corrective actions to mitigate future risks.
The review took place in June 2024 and a final report and recommendation was provided to the Board and Wellington Water Committee in July 2024.
Final Report Review of Wellington Water capital programme estimating and budget systems
Review findings
In summary, the review found that:
- Wellington Water is not as mature of an organisation as would be expected and has not evolved in step with the evolution of its functions and as an organisation has not kept pact with increased demand.
- There are unclear structures and accountabilities, with like functions not grouped together.
- A control environment that is loose and not fit for purpose, with inadequate systems and processes and some missing competencies (including strategic leadership).
- There is a culture of not wanting to hear or present bad news, to manage bad news rather than sharing with with the board and stakeholders, and a mismatch between Wellington Water's values and its culture.
- The Long-term Plan (LTP) process is complex and a number of other factors made the development of 2024/25 LTP unique.
- Under-resourcing in the Finance and Risk functions.
- The flaws were the unsystematic allocation of corporate costs, the lack of financial oversight at a macro level, the poor communication around the corporate cost percentage to be allocated, and the lack of response on several occasions when clarification was sought.
- There was a tendency to see some of these problems as issues to be addresses by the new water entity which Wellington Water will transition into.
- On the upside, Wellington Water had formed good relationships with shareholders, the process used was mostly good, they met the milestones and delivered outputs to councils for their Long-term Plans, and feedback from councils were generally complimentary.
Review recommendations
The review made the following recommendations which fall into six broad categories:
- Rebuild the trust and confidence of shareholding councils in Wellington Water.
- Rebuild the trust and confidence of middle management and staff in Wellington Water's senior management.
- Restructure the organisation so that accountabilities are clear, and capabilities can be substantially enhanced in the lead-up to the new entity.
- Treat Wellington Water's readiness for reform as separate from the BAU work programme.
- Review Wellington Water's Annual Plan processes to deliver capital programmes for councils.
- Strengthen governance oversight.
Implementing the recommendations
To implement the Review recommendations, Wellington Water has developed an Organisational Capability Plan and supporting Gantt Chart, which provides a summary of activities:
Significant improvements to achieve value for money
Background
Since the independent review into an error in our budgeting advice for councils’ 2024-34 Long Term Plans was released in July last year, the Board and new CE have moved with urgency to implement the review recommendations, strengthen culture and ways of working, and make improvements to achieve value for money.
As a result of these changes, new information has recently surfaced which supports what we have suspected – that there is a severe lack of systems and controls around how we are managing our contractors and suppliers, and we are not getting value for money for our councils and ratepayers.
We took these concerns very seriously and investigated. Our investigations found:
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Lack of oversight, assurance, and weak financial processes and controls around how the company manages its consultants and contractors, which opens us up to risks around fraud.
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One isolated incident of fraud was identified. The person responsible no longer works for us and the matter is now in the hands of the police.
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Benchmarking of our costs from our contractors, consultants and suppliers against other comparable councils found that in most cases we were consistently more expensive than other councils. This is likely to be a symptom of our contractual set up with suppliers and our lack of oversight, assurance and financial controls and processes.
We unreservedly apologise to our shareholding councils and the ratepayers of the Wellington region for these issues. This is not good enough and we are immediately taking further action.
What we’re doing to improve
As soon as these concerns came to light, we took action. We have already made some improvements:
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Reset our contractual set up with our project delivery (consultant and contractor) panels to have direct contract and relationships with all sub-contractors working on our projects. This increases Wellington Water’s oversight of the work, reduces double handling, allows us to get the right contractor, and saves on contract management costs.
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Reset the focus and scope of our set up with our frontline network maintenance and operational Alliance partner , including implementing a new performance framework and increasing efficiencies.
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Increased commercial tension across our project delivery panels – we are putting more work out to open tender for competitive bidding.
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Developed and implemented value-focused key performance indicators and measures for all our contractors and consultants.
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While we have made some progress, we know we have a lot more work to do. We’re also going to:
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Continue to drive positive culture change where our people feel safe to raise risks early.
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We have scheduled the first of many fraud and corruption training workshops for staff.
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Improving financial controls and oversight, and making sure the right people are reviewing the right invoices before they’re paid.
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Introduce stronger day-to-day oversight of the work our contractors do.
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Summary reports
Summary of Report Analysis of Panel Costs and Valuation Unit Rates (AECOM Report)*
*Please note, Wellington Water has confirmed with the authors of the above report (AECOM) that it is incorrect to take from the ‘Unplanned Maintenance graph’ on page 2 that the cost of a Wellington Water maintenance job is three times more than other comparable councils.
The graph does not show the cost per job. It shows the total unplanned maintenance expenditure on water supply per km of network length.
The age and poor condition of the region's network means that it requires a high number of reactive repairs (i.e. leak fixes) per kilometre, when compared to other councils. Therefore, the increase in spend shown on the graph reflects the increase of reactive repairs that Wellington Water has had to do to maintain an aging network.
Old infrastructure tends to break more frequently and is more expensive to fix. The cost of individual work is a factor in the overall figure, but it cannot be said it is the primary driver of the increasing unplanned maintenance cost. The review excluded assessment of contractor efficiency, although the report notes Alliance labour and plant rates are fair and reasonable compared to the competitive industry charges, and, if anything, appear to be somewhat low.
Full redacted reports
Key documents
We will continue to keep our councils and the public up-to-date on our work to address the issues found in the review and implement its recommendations. Updates will be posted on this webpage.
From time to time we may also issue media statements on this work. See below for our media releases and key documents.
Media releases
Wellington Water apologises for error in budget advice, 24 May 2024
Release of review into Wellington Water's budgeting advice error, 26 July 2024
Next stage in Wellington Water improvement plan confirms massive gaps in company, but better value for money for councils and ratepayers is on the way 3 March 2025
Other key documents
Wellington Water Committee Meeting Agenda, 24 May 2024
Wellington Water Committee Meeting Agenda, 26 July 2024
Summary of Report Analysis of Panel Costs and Valuation Unit Rates (AECOM Report)*
AECOM Full Redacted Report - Analysis of WWL Panel Costs and Valuation Unit Rates*
*Please note, Wellington Water has confirmed with the authors of the above summary and full report (AECOM) that it is incorrect to take from the ‘Unplanned Maintenance graph’ on page 2 that the cost of a Wellington Water maintenance job is three times more than other comparable councils.
The graph does not show the cost per job. It shows the total unplanned maintenance expenditure on water supply per km of network length.
The age and poor condition of the region's network means that it requires a high number of reactive repairs (i.e. leak fixes) per kilometre, when compared to other councils. Therefore, the increase in spend shown on the graph reflects the increase of reactive repairs that Wellington Water has had to do to maintain an aging network.
Old infrastructure tends to break more frequently and is more expensive to fix. The cost of individual work is a factor in the overall figure, but it cannot be said it is the primary driver of the increasing unplanned maintenance cost. The review excluded assessment of contractor efficiency, although the report notes Alliance labour and plant rates are fair and reasonable compared to the competitive industry charges, and, if anything, appear to be somewhat low.
Changes to Project Delivery Panels