Money down the drain: Scathing Wellington Water report explained

Monday, 3 March 2025

When a budgeting error left Wellington region’s councils with a last-minute $51 million bill, Wellington Water’s new chief executive Pat Dougherty set about overhauling the utility.

A scathing review identified a dysfunctional culture, and Dougherty encouraged staff to speak up about any problems.

That whistleblowing led to a new investigation, released Monday.

The report, by infrastructure consultants AECOM, is damning and has identified significantly higher operations and maintenance costs for Wellington Water when compared with peer councils, Christchurch, Hamilton, Rotorua, and Whanganui.

That’s particularly true for unplanned water supply maintenance, which is unexpected or emergency repairs to pipes and is commonly the result of equipment failure.

It’s worth noting that last year, The Post revealed the cost to fix a leak had increased from an average of $1500 in 2021 to $4932.

Monday’s report found unplanned water supply maintenance expenditure per km of pipe increased threefold between 2017 and 2022.

And the three-year average (2019-2022) expenditure per km of pipe was nearly three times higher than the average of other similar councils.

While inflation contributed to some of this increase, the report says a substantial portion was unexplained.

The report said: “Higher maintenance expenditure might have reflected cost structures as well as network condition.”

Contractors and consultants

Wellington Water established a capital works contractor panel (or capex panel) in 2018, at the time describing it as “industry-leading procurement structures.”

Starting from 2020, three teams of contractors would carry out planned water network construction for the next four years, with a two year renewal period.

The three teams were: E Carson & Sons, Brian Perry, GP Friel; Construction Contracts Limited (CCL), EN Ramsbottom, Juno Civil; and Fulton Hogan, Dews Construction, HydroTech.

As well as that, a “maintenance alliance” embedded a Fulton Hogan team within Wellington Water to deliver “customer service”.

At the time, Wellington Water said this panel model would reduce costs and see an end to peak pricing behaviour.

AECOM’s report found that average contract rates for pipe installation within the capex panel “well exceeded the average of the peer council valuation unit rates', particularly for water and wastewater.

That suggests that pipe installation costs were 'significantly higher than in the comparator council areas.”

It also found preliminary and general costs, particularly for temporary traffic management and site establishment and disestablishment costs “were significant”.

Charges by consultants were “in line with the general infrastructure industry expectations”. But AECOM expected those rates to be towards the lower end of the range because of the volume of work and reduced risk.

A peer review of the report by construction consultancy Rider Levett Bucknall (RLB) also raised concerns about time billing, the application of overheads, and the composition of costs and overheads.

RLB suggested several possible reasons for the higher costs paid by Wellington Water which included differing design standards, as well as for traffic and waste management, and health and safety, differing contracts, pricing mechanisms and client expectations and geographical or geological differences and challenges.

What now?

Because of the data limitations, RLB recommended reviewing contract and commercial mechanisms, and supplier overheads to identify if those were driving cost.

It also said Wellington Water’s processes should be scrutinised to look for inefficiencies and suggested further discussions with suppliers to see what is pushing up prices.

Wellington Water board chair Nick Leggett has apologised.

“Benchmarking found that in most cases we are ‘consistently more expensive’ than other comparable councils, particularly for drinking water and wastewater assets.

“These higher costs are likely to be a symptom of our contractual set up with suppliers and our lack of oversight, assurance and financial controls and processes.

“It is now abundantly obvious that we have not been delivering value for money for our shareholding councils. This is as unacceptable to the Board, as it is to councils and ratepayers.

“It’s important to note that these issues are the same ones that staff and some of our councils have been raising for a while now. We apologise for not listening previously. We are listening now and acting.

“We unreservedly apologise to our shareholding councils and the ratepayers of the Wellington region for these issues. Everyone expects and deserves better.”

Leggett said the utility had already reset the consultant and contractor panels so it had a direct relationship with sub-contractors. A lack of oversight “resulted in doubling handling of work and additional contract management costs”.

There were changes to the maintenance alliance with Fulton Hogan, he said. “We have already seen improvements – our response times to jobs have been the lowest since the Alliance was established five years ago.”

More work would go out to open tender for competitive bidding, he said. “This will ensure we can better sense check prices and quotes and understand if we are getting the best price for key projects.”

There will also be fraud and corruption training workshops for staff, increased financial oversight and approvals of payments to consultants and contractors, banning annualised large value purchase orders and automatic payments.

The board accepts all recommendations from the report and review. “We haven’t been sitting on our hands, but we know that there is much more work to do,” Leggett said.

The utility is already on borrowed time. The coalition government abandoned Labour’s Three Waters reforms and under a new plan, Local Water Done Well, is requiring councils to set up new entities, with greater borrowing power.

Last month, in a meeting with Wellington City Council Dougherty requested an extra $37.5m over the next three years, some of which would go towards replacing 30 permanent contractors and consultants with in-house staff.

Following the briefing Councillor Ben McNulty made a series of social media posts critiquing Wellington Water’s asset management system, which is operated and maintained by Veolia and Fulton Hogan.

McNulty said: “That makes it incredibly difficult to introduce commercial tension into the model and get better efficiency so a new system owned by ratepayers is required.”

He added: “It’s hard to escape the feeling that for the next two decades we are comprehensively screwed.”