True Costs of Local Body Amalgamations Disguised in Wildly Optimistic Estimates

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Local Government Commission Instead Should be encouraging Collaboration

Dec 7, 2017 - The Lions service organisation called on management consultant Derek Williams, a specialist in mergers, to become a platform participant in its community forum programme designed to achieve a wider understanding among voters of the pending referendum on the amalgamation of local bodies in the Wairarapa.

Mr Williams drew upon his long experience in such public rationalisations, especially in IT blending, to warn the assembled on what he sees as the contemporary outcome of these mergers. He further refined his views in answering our Five Questions….

1. In your argument against local government amalgamation in the Wairarapa you were particularly cautious, downright sceptical in fact, of the stated costs in the IT component of the scheme?

From a review of the papers behind the IT numbers it appeared that:

First a top tier firm was asked to supply an estimate of the costs involved in bringing the IT systems of the three Councils together and the resulting estimate was between $20 and 30m.
Unnamed “experts” at the Local Government Commission then “adjusted” the number to around $10m and we know not the basis for this bold “decision”.
A further consultancy was then engaged to refine the costs further and according to their report after a few phone calls to vendors they were able to get the number down to $2.3m with some caveats including to perform a deeper dive on the requirements and numbers before proceeding.

That is why I don’t believe that the numbers for the amalgamation of the IT systems are within a bulls roar of reality. The facts are that the work hasn’t been done to a “rough order of cost” level that you’d see in an initial high level business case in the commercial sector. The initial $20-30m was probably in the right ball park when it was done and the real cost now, with the passage of time, is likely to be substantially higher.

2. You stressed that the benefits of the amalgamation could be achieved and at no additional cost if the territorial local authorities involved, the ones in Masterton, Carterton, and Martinborough, focussed more on collaboration with each other?

The local Councils have already proved that they are capable of having fits of cooperation with each other and so far as I can tell there is no legislative barrier to them having more. Specifically:

It appears that most back office services across the region could be run as shared services in support of local and mobile service delivery teams across planning, infrastructure and regulatory services. Gaining efficiencies from shared services typically involves standardisation, simplification, automation and a degree of centralisation under effective governance and project management which remains engaged with key stakeholders. In such a scenario we would end up with mobile and decentralised field forces that are equipped with modern technology supported by a set of back office processes that work and which are responsive and efficient.
There are policy and strategy matters that require the Councils to start acting as adults: * The determination of what region wide facilities and access to them will be governed and managed as portfolios including for example halls, community centres swimming pools, parks and reserves, museums and art galleries etc. * Creating a district voice to deal with central and regional government on local environmental and infrastructure issues transport, water etc and revenue sharing.
In parallel the business and productive sectors need to work together with limited Council and Government involvement to act on the opportunities for appropriate economic growth across the region.

Whether the proposal to amalgamate goes ahead or not local leaders in all sectors will have not have have the excuse of possible amalgamations or restructurings to sit on their hands waiting for new “wisdom from Wellington”. There will be no longer any legislative or potential structural barriers to further fits of cooperation between the Councils play their part in getting to the Wairarapa moving forward

3. The amalgamation of the Hawkes Bay territorial local authorities was rejected. Do you see any pointers here to the pending Wairarapa referendum result?

I hope that the Hawkes Bay rejection and the publicity surrounding the Auckland super city implementation will be encouraging voters in the Wairarapa to understand the risks and costs of the Council amalgamation proposal and to reject it by voting no.

4. You are cautious about the underpinning argument in favour of these amalgamations in regard to their leading to economies of scale?

I remain cautious. There are many efficiencies and improvements that can be made through shared services from capturing the benefits of scale. However, these to not require the restructuring and amalgamation of Councils.

The threats to local representation and the effective operation of democracy from amalgamation and restructuring are high as are the threats to the character and identity of towns. I read an account recently of the amalgamation and subsequent de-amalgamation of councils in Queensland, where it was reported that the people of Noosa, one of the Councils in question woke up to find that their “identity had been stolen” through the amalgamation.

I don’t think it matters where Council services come from so long as they work and are delivered at the lowest sustainable cost. What is far more important is that the identity of towns be protected and enhanced by local people. The governance and management arrangements for local government should be dominated by local people who are engaged with local communities and make decisions on local matters locally.

The Go Swiss study by the New Zealand initiative strongly suggests that local control over local matters is a significant factor in creating a sustainably strong economy. As a backdrop to our arrangements for government it highlights the lack of any meaningful local control and sharing of tax revenue.

This leads me to think that forcing more amalgamations of local Councils is stepping in the wrong direction and we need to look more broadly for solutions to the problems facing local government and its relationship to central government.

Our long run economic, social and environmental performance compared to the rest of the world suggests that continuing to rely on big central government and the wisdom of Wellington may not provide the best future for us all.

5. As a management consultant you have had hands-on involvement with public projects at many levels. In your experience what are the real causes of the cost overruns that increasingly characterise them?In engineering construction works the most common problems I see are:

Lack of validated design assumptions and requirements leading to deliverables that don’t work as promised and/or expensive remedial actions.
Absence of or the failure of basic project controls to detect and remedy variations from plan promptly. These are generally exacerbated by poor governance – lack of subject matter expertise and role confusion – many of the people I see in project governance have role confusion in which they act as a stakeholder for the project outcomes rather than as a member of the group that need to hold management accountable for the application of resources and capability to deliver a planned result in full on time and within budget.
Many supply side problems are exacerbated by contracts that have been formed by lawyers dealing with lawyers that are not understood or practical to apply by either the project manager or the supplier.

In the world of IT projects I see the same issues as I see in the engineering space and observe that:

The realisation of benefits from IT projects generally requires that the new system can talk with existing systems and share data. People and existing systems also need to be able to access the new system in a controlled way. These points of integration and user management often become stumbling blocks to the implementation of new systems because they were overlooked in the planning and estimating stages of the project.
All too often I’ve found that the path to production for new systems has both technical and people obstacles that were underestimated in the initial planning.With hindsight, most projects that have run into difficulty would have benefited from significantly better due diligence and planning up front. The cost of better due diligence and planning would have been much less than the costs of subsequent remediation.

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