Three Waters Reform a fountain of funds for the hourly crowd advising the government. Photo / Chris Korte
A new tally of the cost of the controversial Three Waters programme shows that well over half of the responsible department’s spending has gone to contractors and consultants.
The Department of Internal Affairs (DIA) spent $94 million pursuing the programme from inception in mid-2020 to the end of December 2022. Consultants and contractors made up $56.87m of that total (including legal work). By comparison, departmental staff working on the programme cost $18.56m.
The figures show that the department’s spending on outside work and advice built considerably. It was $11.2m in the 20/21 fiscal year, doubled to $22.57m in 21/22 and hit $23m for just the first six months of the current financial year.
The department’s staff costs for the same period were $3.847m in 20/21, climbing to $10.38m in 21/22, and reaching $15.7m in the first six months of the current financial year.
The reform programme was preceded by a more preliminary review of the delivery of water services - stormwater, wastewater and drinking water - which was itself a $5m programme of work that began in earnest in the 2017/18 fiscal year.
Over the two-and-a-half-year period of the reform for which the Herald obtained an updated and detailed breakdown of costs under the Official Information Act, the consultants and contractors who were relied on most included Ernst & Young (paid a total of $9.312m, top daily rate $3500); Martin Jenkins ($4.1m, top hourly rate $400); Mafic Partners ($2.567m, top daily rate $3500); and WICS, Scotland’s economic regulator for water ($2.642m, top daily rate $2000).
By the Herald’s estimate, more than 100 contractors and consultants have filled day-to-day jobs, often on fixed-term contracts, for Three Waters work at the DIA over the period.
While some of these positions were specialised (entailing, for example, IT procurement, infrastructure and major project expertise, and financial and commercial expertise) many more of the jobs appear to involve work done in the ordinary course of government.
Those contractor positions included dozens of policy advisers and analysts, ministerial advisers, communications advisers, engagement advisers, advisers on iwi/Māori, personal assistants, business advisers and analysts, human resources co-ordinators and recruiters, data analysts and administrators, project administrators, and three different job description writers.
Contractors were typically hired through staffing agencies, however staff have also been seconded to the department from consultancies including Martin Jenkins, Senate Communications, Mafic Partners and Ernst & Young.
The staffing agencies included GBL Personnel, Jacksonstone & Partners, Robert Walters, Momentum Consulting and H2R Consulting.
Some of the rates paid for ordinary positions included: $63 per hour for a project administrator; $78 per hour for a personal assistant; $220 per hour for a strategic adviser iwi/Māori; and $134 per hour for a job description writer.
Of the dozen principal adviser and principal analyst positions filled in 20/21 and 21/22, the average pay rate was $157 per hour.
For comparison, the Ministry of Business, Innovation and Employment’s website notes a staff pay scale for principal analysts of between $132,000 and $160,000 per year, or roughly $63-$77 per hour.
The policy and advisory work of Martin Jenkins particularly ($4.1m) also stands out as work that is typically a speciality of the public service.
Simon Watts, the National Party’s spokesperson for Local Government, called the spending “bloated and wasteful”.
“Some of this spending is just outrageous. We’ve been told that the high consultant spending is for specific expert skills, but look through these roles: policy analysts, business analysts, treaty managers … these are run-of-the-mill roles, they should be delivered by the public service.”
He said the Government had created a “cultural issue” within the public service that has fuelled contracting-out the bread and butter work of government.
The Government is now reconsidering aspects of its Three Waters plan in light of the October election. Two pieces of enabling legislation were introduced in Parliament last year (the first was passed under urgency).
However, Prime Minister Chris Hipkins has mooted the possibility of revisions to the widely unpopular specifics of the plan to wrest control of water services assets from 67 local councils and agglomerate those assets within four new regional entities. Those entities would be under the equal control or co-governance of iwi and councils (separately, hundreds of iwi and hapū will also have the right to direct the entities, and as the partially enacted legislation stands, these directives must be given effect).
Minister for Local Government Kieran McAnulty declined to respond to the Herald’s questions about DIA’s staffing arrangements, including its spending on contractors and consultants.
“As Minister, I am not responsible for operational aspects of our Water Reform, that includes staffing. I understand the DIA has provided you with a response directly that details the level of specialists required for this complex transition.”
He also declined to say whether he has asked the department to pause any spending in light of the Government’s current reconsideration.
Michael Lovett, deputy chief executive of the local government department at Internal Affairs, emphasised that: “implementing water services reform is one of the most ambitious and complex transformation programmes ever undertaken in New Zealand. This is a large-scale task involving the detailed design and establishment of the new Water Services Entities requiring the transfer of substantial assets, liabilities, staff, information and systems.”
Lovett said the total spent on strategy and management consultancy firms and specialist expertise reflects the scale of the project, which anticipates borrowing between $120 billion and $185b to maintain and improve water infrastructure over the next 30 years.
Some councils have a history of considerable underinvestment in water services infrastructure.
The current plan is that the four new Water Services Entities (which are to become operational on July 1, 2024) will borrow heavily and directly through the private bond market against the rates they charge for water services.
“It is prudent to invest in the right expertise to ensure the new Water Services Entities are best positioned for a smooth transition on day one,” Lovett said.
Lovett also noted that much of the Three Waters work is “one-off” and demands “highly specialised expertise” in a range of matters including: “economic analysis, capital structure and governance design, debt management, engineering, regulation, specialist planning and change management.”
He said it was “simply not practical or cost-effective for the Department of Internal Affairs to maintain this capability on a permanent basis.”
However, Robert MacCulloch, an economist and professor at the University of Auckland with an interest in the public service, said the numbers paint a picture of exploding costs, both for staff and for outside expertise: “It looks like the department has been hiring managers who have no subject expertise and who are unable to do the financial and other skilled work themselves. Staff numbers are rising significantly and we also see this high and increasing spending on outside consultants. It’s the worst of both worlds.”
MacCulloch said there were sound arguments for several different models for the public service: a slim public service which efficiently bought outside expertise from the private sector where necessary; as well as the Singapore model of a small, highly skilled, and highly paid public service with excellent internal competence.
He said he could see evidence of neither in the new DIA data. “The proof that they’re lacking important skills is in all the hiring-out that they’re doing; if the internal competence was there, that wouldn’t be necessary.”
MacCulloch further suggested that the Three Waters work is something of a microcosm of the expansion of both the ranks of public sector staff and spending on consultants and contractors, broadly in evidence since Labour came to power in 2017.
The figures suggest that the growing unpopularity of the reforms, especially through 2021 and 2022, fuelled a considerable reliance on outside public relations help.
In fiscal 20/21, communications spending was in the order of $71,000, however it jumped to some $2m in 21/22, the lion’s share of which was paid to Senate Communications, brought in by DIA in late June 2021 to help respond to the fallout from a negative and emotive advertising campaign run by the department. That campaign earned a warning from the Public Service Commission (the commission has strict guidelines for how public money can be spent on advertising).
In that period, the Government also decided that the reforms would be mandatory for all councils; previously, councils were told being involved would be voluntary.
Senate was paid a total of $1.44m for Three Waters work for the 18 months from mid-2021 to the end of 2022. In November 2022, DIA ended its relationship with Senate. Communications firm Sweeney Vesty is providing ongoing communications work and was paid $510,875 (top hourly rate $340) for “National Transition Unit communications support” for the programme in the six months from mid-2022 to the end of the year.
Total outside communications spending for the six months to December 2022, which included the Sweeney Vesty sum, totalled roughly $1m.
The DIA’s Lovett said the majority of communications activity undertaken by the National Transition Unit, responsible for making the shift to the new system for delivering water services, relates to communications with stakeholders - including councils, iwi and unions - rather than “public relations” or proactive media relations per se.
However, it appears that the $1.44m of work by Senate, into which the Herald has some visibility through the OIA, was not tied to the Transition Unit and was focused on building public trust and confidence in the department’s Three Waters work.
In addition, an average of 25 full-time staff worked more broadly on the department’s communications in the past two financial years.
Minister McAnulty said Prime Minister Chris Hipkins had asked him to present the Cabinet with “proposals to refocus the Government water services reform” and that he hopes to do this over “the coming weeks”.
McAnulty recently met mayors, Local Government New Zealand sector representatives and representatives of Communities 4 Local Democracy, a group of councils opposed to the Three Waters plan as it is formulated. He said the next step is to consult with the sector and iwi.
“My objective is to strengthen the relationship between councils and the water services entities, whilst retaining the balance sheet separation, which is an essential characteristic ensuring rates don’t blow out, as they inevitability will under the status quo and National’s policy.”
The National Party has promised to scrap the Government’s Three Waters plan if given the opportunity. In February, it released an alternative plan that it said would preserve council ownership and control of water assets. It would use an economic regulator (a feature of the Scottish water system) to ensure that adequate investments were made in both building and maintaining assets. In addition, the Minister for Local Government would approve asset investment plans and hold a backstop power to intervene.
Watts rejected McAnulty’s contention that water rates would be higher under National’s plan. He said his party’s plan anticipates that water services would largely be delivered by council-controlled organisations (which would be formed by councils voluntarily banding together) and that balance-sheet separation from individual councils’ books (necessary to increase borrowing considerably) would be more easily achieved than the Government has suggested.
* This story has been updated to remove an incorrect hourly rate given for work by Grant Thornton. The Department of Internal Affairs provided the information in error to the Herald.
'It is a much more efficient way of getting twice as many apples using a lot less water.'