Kāinga Ora - Investment and Delivery Committee
Paper no:
X.X (Governance to insert)
Meeting date:
17 October 2022
General Manager
[email address]
General Manager, Urban Development and Delivery
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s 9(2)(a)
Paper author:
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@kaingaora.govt.nz
Owner Interface Manager - Piritahi
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Business Group:
Urban Development and Delivery
Title:
PIRITAHI – CONTRACT EXTENSION
INFORMATION
RELEASED UNDER THE
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Piritahi Contract Extension
Purpose
1. This paper seeks Investment and Delivery Committee agreement to enter into negotiations with the Non-Owner Participants (NOPs) of the Piritahi
Alliance (the Alliance) for the extension of the Alliance Civil Alliance Programme Agreement (ACAPA), which has a completion date of 6 December
2023.
2. While there are no direct financial implications associated with the extension of the ACAPA, we are presenting this paper to IDC as the total value
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of the overall programme of works associated with this contract extension should have IDC visibility.
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Recommendations
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3. It is recommended that the Kāinga Ora Investment and Delivery Committee:
a)
note that Kāinga
Ora needs to consider the extension of the ACAPA at this time to provide certainty to the Piritahi Alliance participants for
its forward work programme;
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b)
note that three scenarios have been considered, and that an extension of the ACAPA is the recommended approach to ensure recent
investment and efforts to improve performance can continue to be realised;
c)
note that the recommended approach has been endorsed by Construction Programme Assurance Panel (CPAP) who we wil continue to
work with for advice through the contract extension process. This approach was also endorsed by the Large-Scale Project Programme
Governance Board at its meeting of 16 September 2022;
d)
agree to Kāinga Ora entering into negotiations with the Non-Owner Participants (NOPs) to extend the ACAPA for a further term of three
years, and
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e)
agree to delegate execution of the contract extension to the General Manager Urban Development & Delivery, subject to the negotiations
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being successful.
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Piritahi Contract Extension
Background / Context
4. On 7 December 2018, the ACAPA was entered into for the purpose of forming the Piritahi Alliance to design and deliver civil infrastructure required
for Kāinga Ora Large-Scale Projects (LSPs) in Auckland.
5. The original procurement process was undertaken by what was then HLC, prior to the establishment of Kāinga Ora. The procurement process was
robust, to ensure it met and aligned with government procurement rules and expectations. The Tender Evaluation Panel included a cross section of
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internal employees, and also an independent external party. A probity auditor from PWC was also engaged to observe the procurement process to
ensure integrity was maintained.
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6. The ACAPA has a term of five years from date the ACAPA was executed, and its curent completion date is 6 December 2023. An extension of the
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ACAPA is being considered now to provide the Alliance participants with certainty of forward work within a reasonable timeframe.
7. In accordance with clause 18.1(b) of the ACAPA, Kāinga Ora, as the Owner Participant of the Alliance, may at its sole and absolute discretion extend
the completion date of the ACAPA. The option to extend the ACAPA was a part of the Open Market RFP and was therefore visible to all tenderers
during the procurement process.
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8. The initial focus for the Alliance was ‘Scale and Pace’. To date Piritahi has delivered $600m of works and enabled over 4,000 homes. This work
programme is set to increase significantly, as noted in paragraph 19.
9. The Al iance has delivered a significant amount of infrastructure over the past four years but has not been focused enough on the basics of project
delivery, including efficient processes and systems.
10. As a result, programme and cost performance has not aligned with Kāinga Ora’s expectations in these areas. However, it should be noted that
communications and direction from Kāinga Ora has varied on these matters, creating confusion within Piritahi.
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11. In the last 12 months, a deliberate effort to shift and align Piritahi with Kāinga Ora’s expectations has occurred, accompanied by upskilling and
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more focused communication and direction from Kāinga Ora.
12. In late 2021, BRS Consulting was engaged by the Alliance to assist with providing Alliance 101 training for the Piritahi team and those within Kāinga
Ora working with the Alliance, to help develop a high-performance plan and provide leadership coaching for the Alliance Management Team
(AMT). In addition the fol owing initiatives have been undertaken:
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Piritahi Contract Extension
a) Appointment of a new Chair for the Programme Alliance Board (PAB)
b) Establishment of the Owner Interface Management Team
c) Development of a new Al iance Charter
d) Introduction of the KRA (Key Result Area) and& KPI (Key Performance Indicator) Framework.
13. These actions are expected to catalyse improved performance of the Alliance and deliver on Kāinga Ora’s expectations. Some early signs of success
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are showing, but these improvements will take time to be fully realised. These actions and initiatives are also summarised in the attachment to this
paper.
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14. BRS was also asked to undertake a strategic review (health check) of the Alliance to guide both Kāinga Ora and the Non-Owner Participants (NOPs).
The Health Check Report provided a number of recommendations. An important recommendation was that with the significant investment made
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into the Alliance, and the participants’ willingness to improve the Alliance’s performance, the NOPs should be provided with the opportunity to
provide a proposal for the contract extension.
15. Given the recent efforts and investment, the UDD team agrees with the recommendation and is now presenting this approach to IDC to enter into
negotiations with the NOPs to extend the ACAPA completion date for a further term of three years.
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16. We note that, given the principles under which an Alliance achieves the best value, a collaborative approach will be required to develop the
proposal for the contract extension. This will allow Kāinga Ora to table the areas of the contract that need addressing, and also to be a part of any
solution.
17. There is a risk that the NOPs may not agree with the possible solutions required to extend the contract to ensure it provides value to Kāinga Ora. At
present this seems unlikely and all participants have clearly expressed their desire to stay involved and improve.
Discussion
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18. The recent LSP approvals allow us to plan more holistically which has improved our ability to brief and provide certanty of forward work.
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19. The Programme Business Cases approved by cabinet in Mangere, Roskill and Tamaki set up UDD to deliver over 13,500 homes over the next 10
years including $2.6b of land development and infrastructure work. We estimate that Piritahi will deliver land for over 6,000 homes and may get up
to $1bn of capital spend in the coming four years (the remaining year and proposed three-year extension).
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Piritahi Contract Extension
20. To align with this forward planning, we now need to consider whether the ACAPA should be extended. The fol owing three scenarios have been
considered in the below Risks and Benefits assessment table:
Benefits
Risk
Extend the ACAPA
Risk is shared between Kāinga Ora and the NOPs. While there is an opportunity to look at rates
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Provides a cost-effective procurement approach as and multipliers, there is a risk of no healthy
the Alliance participants are well established.
price tension.
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Provides an opportunity for the Alliance
Current performance issues in programme and
participants to implement lessons learned since
cost management have the potential to
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the Alliance was formed.
continue.
Continue the development of Tier 2 contractors in Alliance participants do not have the capability
the industry
and systems that a Tier 1 contractor would
provide.
Gives time for new structures and recent
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investment to bed in and take effect.
The parties may not be able to adequately
address the areas that Kāinga Ora raises and
Continue and build on the processes that are
therefore the contract may not be extended.
working well (e.g. waste minimisation, Watercare
Certificates of Acceptance)
Procure new Alliance
Provides the opportunity for competitive price
Delay to delivery as a result of having to go to
tension.
market and undertake an interim alliance phase
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Opportunity to utilising Tier 1 contractors with
with new partners.
greater Alliance experience
Loss of motivation by existing team.
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Opportunity to establish new efficient systems.
Increase in cost to establish new alliance.
Programme of work may not be attractive to
Tier 1 contractors.
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Piritahi Contract Extension
Return to traditional
Al ows a potential return to the CCCS / 3910
Loss of progress made over the past three years,
delivery model
traditional contracting model which could be
such as building lines of communication with
advantageous to the market and Tier 2
Auckland Council, and CCOs
contractors.
Capacity of the existing market is constrained.
Kāinga Ora will have higher control of delivery and Reputational damage due to the Alliance being
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scope outcomes.
viewed as a failure
Reduced capital expenditure through lower
Loss of non-financial benefits and wider
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management / P&G costs.
potential “value” outcomes (such as growth of
Clearer “ownership” of programmes of certainty
future Tier 1 contractors)
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of work for our external partners.
Potential loss of current suppliers and
established relationships
Increased reliance, and therefore resource
requirements, on other Kāinga Ora teams (e.g.
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procurement)
Risk of failing to meet SPE targets.
Proposal
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21. UDD’s preferred approach is to provide the opportunity to the existing Al iance Participant to extend the ACAPA as per the original RFP. This will
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provide time to embed recent investments from Kāinga Ora, as well as the efforts being made by the Piritahi team and the NOPs to shift the
Alliance’s direction to align with Kāinga Ora’s expectations. This will also help to realise the wider value proposition the Alliance model should
present.
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Piritahi Contract Extension
22. If the decision is made to commence negotiations with the NOPs, the following is a summary of the areas we will address as part of the
negotiations:
a) Review of the ACAPA (contract agreement), including various changes and tidy-ups of last three years, for example practical completion
requirements
b) General cost management and programme performance
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c) Financial establishment audit to re-establish Kāinga Ora expectations from NOPs in terms of systems and processes, home organisation
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support
d) Review of risk management including how risk is allocated between the Alliance and the Owner Participant.
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23. To provide the Alliance participants with certainty within a reasonable timeframe, the following timeline will be set:
Completed
PGB and CPAP endorsement to extend ACAPA
October 2022
Agreement from IDC to enter into negotiations for ACAPA extension
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November 2022
Request for Proposal released to NOPs
January 2023
Contract negotiations commence with Alliance participants
March/April 2023
Proposal received from NOPs
April 2023
Agreement on extension of ACAPA
December 2023
New contract commences
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Risks and Mitigation
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24. Key risks associated with this paper are that the NOPs may not wish to extend the ACAPA. To mitigate this risk, Kāinga Ora will work collaboratively
to develop the proposal to be considered for the extension. Further risks are detailed in the risk and benefits assessment in paragraph 20.
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Piritahi Contract Extension
25. We note that although there is some risks in extending the Alliance as per the above comments, there will remain an exit clause (as per the existing
ACAPA) should the Alliance’s performance not meet Kāinga Ora’s expectations. We also note that extending the ACAPA does not commit Kāinga
Ora to using Piritahi, and an option to have a combination of models could be investigated if desired.
Consultation
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26. Consultation has been undertaken with UDD including the Infrastructure and Civil Construction, Commerical and Governance and Large-Scale
Project teams. Consultation was also undertaken as part of the Health Check Review of the Al iance which informed this paper.
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27. Input was provided by the team that undertook the original procurement for HLC. Commercial Group - procurement has been informed of the
preferred approach. Advice and guidance has been sought from CPAP on the approach to the contract extension and CPAP was supportive. We wil
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continue to work with CPAP for advice through the contract extension process.
Implications
Legal Implications
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28. Kāinga Ora has sought legal advice on the revision of the ACAPA and a review of employment implications.
Financial Implications
29. Financial Implications of the preferred option include costs associated with:
a) BRS - Consulting advice on contract extension approach
b) Legal Costs - contract extension agreement.
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People and Resource Implication
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30. Resourcing levels are not directly affected by the preferred approach. However, if the ACAPA is not extended with the exisiting participants, Kāinga
Ora resources will be affected as identified in the Risks and Benefits assessment table (paragraph 20).
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Piritahi Contract Extension
Treaty of Waitangi and Māori Outcomes Obligations
31. The Piritahi Alliance operates under the Te Haumi Mana Whenua Engagement Framework, which establishes principles for engagement and
working practices between Piritahi and Ngā Mana Whenua o Tāmaki Makaurau. The delivery of this framework focuses on four key areas: working
together, regulatory processes for early and meaningful engagement, cultural capability and expertise, and Resourcing Ngā Mana Whenua o
Tāmaki Makaurau through procurement and growing industry capacity.
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Delegations
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32. As Owner Participant, Kāinga Ora UDD has sole delegation rights to extend or end the ACAPA, however we are seeking IDC agreement on this
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approach as the total value of the overal programme of works associated with this contract extension should have IDC visibility.
Next Steps
33. Following agreement from IDC, the fol owing next steps wil be undertaken:
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a) Inform the PAB of the decision
b) Engage BRS to assist with development of Procurement Plan
c) Complete review of the ACAPA
d) Develop plan for contract extension negotiations.
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Piritahi Contract Extension
Attachments
34. There is one attachment to this paper:
• Piritahi Presentation to IDC
Signature
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Mark Fraser
General Manager, Urban Development and Delivery
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Document Outline
