Next Steps To Achieve Roading Value For Money

Transport Minister Annette King has released the report of the Ministerial Advisory Group on Roading Costs (MAG) and outlined the next steps that will be taken to increase the value for taxpayer money spent on land transport.

The Advisory Group was set up by the Government in 2006, and met with key industry stakeholders, central government agencies and local government to provide an independent view on how to maximise value in roading expenditure and better manage input cost pressures.

"The Government is committing more than $24 billion to land transport over the next ten years. This goes a long way toward alleviating the infrastructure deficit created by the National Government in the 1990s, and toward ensuring New Zealand has a sustainable and effective transport sector, but the amount of money we are spending makes it absolutely essential that we get the most out of it that we possibly can," Ms King says.

"The Advisory Group report includes a number of useful suggestions. It says that changes in project scope have been the most significant driver of cost increases and remain the greatest risk in the future. It also concluded, however, that improvements can be made in the cost estimation process and the design standards used. The MAG also found that strong governance, clear leadership and sound processes are necessary across the Government's transport organisations."

Ms King said that one of the first practical initiatives the Government is taking is asking the State Services Commission to undertake a "Next Steps" review of the Government land transport sector.

"I have asked the SSC to report back to me by April 30," she said.

Ms King said the "Next Steps" project will consider the performance, roles and responsibilities of the Ministry of Transport, Land Transport New Zealand and Transit New Zealand, and also of the Treasury with regard to Rail. The interface of certain activities with local authorities may also need to be considered. The project will:

Consider ways to enhance the responsiveness, performance, capability of, and value for money achieved by, the government land transport sector;
Review the range of funding mechanisms for land transport currently in place and ways to better link demand and expenditure, together with consideration of the appropriate accountability requirements;
Consider the best placement of policy, planning and procurement functions to fit with the New Zealand Transport Strategy and the new funding and planning regime;
Ensure that any proposed changes to the sector do not result in a structural imbalance or bias between transport modes or communities of interest;
Ensure that any proposed changes would result in a system that is financially sustainable.

"I thank the Advisory Group for their enthusiasm and valuable ideas, and their investigation of what is a complex area. I look forward to working with transport officials, stakeholders and others to ensure New Zealanders can enjoy an affordable, integrated, safe, responsive and sustainable transport system."

The MAG report is available on the Ministry of Transport web site at: www.transport.govt.nz

The terms of reference for the "Next Steps" project can be seen at www.ssc.govt.nz/tor-nextsteps

Contacts: John Harvey (04) 471 9305; John Saunders (04) 470 6851; Sharon Oxley (Ministry of Transport) (04) 439 9321.

Questions and Answers

Why have some projects experienced such dramatic scope change and cost increases?

Each project is different. Some examples of the factors that might influence scope and cost increases include requirements that arise as part of the planning approvals process, consultation showing the need to modify the design, and unexpected ground conditions that require additional structural work or changes to design.

Why was the Advisory Group formed?

To assist the Minister of Transport and the Government in ascertaining whether recent cost increases in the roading sector are justified or avoidable.

Who is on the Advisory Group and how were they selected?

The Minister of Transport appointed Mr Clive Tilby as Chair and Ms Jo Brosnahan, Mr Alan Isaac and Mr Stuart McKenzie as members of the Advisory Group on Roading Costs. Nominations were sought from The Treasury, Ministry of Transport and Local Government New Zealand and were agreed by Cabinet.

Who did the Advisory Group consult in gathering data?

The Advisory Group met with key industry stakeholders, central government agencies and local government.

How much did this cost?

The budget for the project was $420,000. The project is not yet complete.

What did the MAG learn about the state of industry competition?

While less than ideal, competition levels were not found to be a large driver of cost increases. Transit has been considering initiatives to overcoming barriers to firms competing for contracts and facilitate new entrants into the market as part of their Value for Money Project. The Government has been working to increase capacity since 2004, and is also keen to promote public private partnerships. Legislation passed under this Government makes such partnerships now possible. They were precluded under the previous National Government.

What did the MAG learn about procurement methods?
A full range of procurement methods are available for use in New Zealand and most of these methods are currently in use. Land Transport New Zealand is currently reviewing competitive pricing procedures for physical works and professional services and is involving industry in the process.

What have been the biggest drivers of cost increases?

Scope change has been the most significant. The accuracy of project cost estimates and increased input costs remain a risk in the medium term. Scope change in the planning phase of large urban and semi-urban projects is the greatest risk going forward.

Did the MAG find evidence of industry price-gouging?

Input costs have gone up but not inconsistently with international trends. Competition has not been a significant contributor to cost increases.

On average, how much have project costs increased?

30 percent to 40 percent as a result of input cost increases.

Where can the biggest cost savings be realised?

Managing input cost pressures and project scope and working with industry

What initiatives to improve value for money are already underway?

Some specific initiatives include a review of procurement procedures by Land Transport NZ, the broader EXG review of value for money in land transport sector, and Transit is developing a National State Highway Strategy. Transit is also making efforts to improve cost estimation reliability and to reduce any barriers that exist to firms competing for contracts. Transit is also looking at its supply chain.

How much have land prices played a role in cost increases?

Land costs have increased significantly since 2000 and will remain a major time and cost factor in delivering new roading.

Some local councils are predicting an increase in maintenance costs as roads built in the 60s and 70s reach the end of their life time? What did the Advisory Group conclude?

The risk of large unforeseen increases in road maintenance costs for both state highways and local roads is low on a national scale, but could pose a risk for some individual councils.

Ends

© Scoop Media