Three Waters spend-up: $21m on consultants and contractors

The Government spent $21 million on consultants and contractors for its controversial Three Waters reform in the 20 months to the end of February. More than $2.5m has gone to consultancy Martin Jenkins, the firm closely linked to Doug Martin, who served as chair of a recent working group.

Ernst & Young was the top earner in the period; it made $5.2m for advice on Three Waters concerning Covid-19 stimulus funding provided by central government to councils, and for accounting and taxation advice.

Martin Jenkins’ contracts, worth $2.5m for “comprehensive policy analysis”, were the second most valuable.

These contracts included embedding Nick Davis and Michael Mills, both directors and shareholders at Martin Jenkins, within the Three Waters group housed in the Department of Internal Affairs (DIA). Davis’ work, along with that of other Martin Jenkins consultants, is at the heart of the controversial reform programme.

The $2.5m to Martin Jenkins does not include payment for Doug Martin’s services in serving as chair of a working group of council and iwi representatives.

The DIA said Martin was paid directly for chairing the group, which was asked to recommend changes to the proposed reforms (core aspects of the programme such as co-governance with Māori were precluded from consideration).

A spokesperson for the department described Martin Jenkins as Martin’s “former firm”. Martin, however, continues to work for the consultancy which he helped to found, though he is no longer a shareholder.

Wellington Water hired Martin to conduct an independent inquiry into a fluoridation failure at its water treatment plants last month. That contract, Wellington Water confirmed, is with the consultancy Martin Jenkins.

Martindeclined to comment. He referred the Herald to the DIAregarding the potential conflict of interest in his role as independent chair of a process intended to reconsider the work of his Martin Jenkins colleagues.

A spokesperson for Minister Mahuta said: “there is clearly no conflict of interest here. Doug Martin has neither had an ownership interest in, nor been director of Martin Jenkins for some years.”

The spending details, released under the provisions of the Official Information Act, also reveal $616,281 was spent on the public relations services of Senate Communications.

It appears that the Senate contract was signed to help manage the flurry of bad press and criticism that flowed from a divisive public information campaign last year. Many people in local government described that campaign as “propaganda”, and the Public Service Commission raised concerns that the material risked advocating rather than explaining public policy.

Senate’s services included the work of Raphael Hilbron, a partner in the consultancy and a specialist in “reputation management”.

The DIA launched the inflammatory advertising component of the information campaign in June, 2021. Hilbron’s communications work on Three Waters began at roughly the same time, and the Senate contract commenced after July 1, 2021.

Simon Court, Act Party local government spokesperson, said: “$600,000 on communications is a heck of a lot of money, and it shows that the Government was scrambling for support after the backlash it received for the way it depicted council water services.”

Court described the overall spend as “a huge amount of money to pay for really bad policy”.

National’s local government spokesperson Simon Watts said the spending on consultants was further evidence that the Government was happy to “spend large amounts of taxpayer money without clear delivery outcomes”.

He said the public information campaign of last year was also evidence of “wasteful spending”. The campaign ultimately failed in its main aim, which was to win, through public support, councils’ voluntary agreement to adopt the Government’s water reforms.

It cost some $3m, including the advertising work of creative agency FCB, and is additional to the cost of consultants and contractors.

The Three Waters reform is a contentious plan to transfer local council-owned and controlled drinking water, stormwater and wastewater assets to four new regional water entities.

While the Government has recently agreed to allow councils to retain shareholding interests in the new entities, their control will limited by three layers of administrative procedure, and it will be shared, through a co-governance model, with Māori groups.

The plan is that councils and iwi will, 50/50, appoint a group of representatives, those representatives will pick a selection board, which will then appoint a governing board for each new water entity.

Councils remain divided on the merits of the plan and many prefer the voluntary opt-in model that the Government originally mooted and then withdrew in favour of legislating mandatory change.

Total spend

Since mid-2020, the Government’s departmental spending on Three Waters has topped $34m, well over half of which has flowed to consultants.

Total expenditure for the reform programme over the period was $416m, however that includes some $382m in grants for water infrastructure and delivery.

Also among the consulting costs, staff recruitment companies Robert Walters, Momentum Consulting, Worklife, and Hudson Global Resources have made more than $1m in total. And the Water Industry Commission for Scotland was paid $1.27m for specialist advice.

What next?

The Government aims to pass legislation to put the water reforms in place before the next election. But both National and Act have promised to scrap the plan if given the opportunity.

In the meantime, local councils are applying for a second round of funding intended to help win their support for the programme. Crown funding of $500m is now open to them; though the money is tied to the adoption of the Three Waters plan, it can be spent on any projects related to “community wellbeing”.

The Government is also offering councils a further $1.5b as of mid-2024, when it is expected the new water entities will be established.

Cabinet papers show that the new entities themselves will borrow the $1.5b, and it will be paid to councils.

Councils can use that money to pursue any wellbeing projects they favour, although Mahuta has insisted that water investment is so costly that the new entities are required to ensure the necessary funds are dedicated to it. Both Act and National have called the money a “bribe” to secure councils’ agreement.

Largest Three Waters consulting contracts,July 1, 2021 to February 28, 2022 (8-month period):

• Ernst & Young: $5.2m, accounting and taxation advice, Covid stimulus funding for local government
• Martin Jenkins: $2.5m, comprehensive policy services
• Mafic Partners: $1.59m, commercial, rating agency and other financial advice
• Water Industry Commission for Scotland: $1.27m, advice, specialist knowledge
• A East: $482,575, special adviser transition director EXPLAIN
• Momentum Consulting: $498,871, 2x senior policy analyst, 3x senior communications adviser, communications adviser, 2x senior business adviser
• Deloitte: $431,775, water workforce analysis and economic impact assessment
• Worklife: $245,973, HR co-ordinator and senior policy specialist
• Robert Walters: $237,049, engagement adviser, senior ministerial adviser, principal ministerial adviser, principal analyst, and programme administrator
• Hudson Global Resources (NZ): $261,220, principal policy adviser and ministerial policy adviser

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