NZ Upgrade, Shovel-Ready programmes lacked transparency and rigour - Auditor-General

Auditor-General John Ryan has heavily criticised the $15 billion infrastructure spend-up during the Covid-19 pandemic, saying the previous government should have ensured better transparency and value for money.

He says the public has a right to expect more, pointing to previous criticism of similar programmes, and has made three recommendations for Treasury.

The Labour-led coalition government announced the $12b New Zealand Upgrade Programme (NZUP) and the $3b Shovel-Ready Programme (SRP) in 2020 to shore up the economy in the face of the Covid-19 pandemic, and invest in long-term infrastructure.

Then-prime minister Jacinda Ardern at the time called it a "once in a lifetime opportunity to invest in New Zealand".

Ryan said he had decided to look at the funding because of the scale of investment and the long-term and potentially intergenerational impacts, noting that ministers decided to act quickly in anticipation of worsening economic conditions.

Finding funding and announcing the NZUP took only a few months, the SRP taking just weeks, he noted.

"It concerns me that significant decisions on the spending of public money continue to occur without appropriate processes for ensuring value for money and transparency," Ryan said.

"I think that Parliament and the public have a right to expect more for spending of this scale."

Ryan said decisions were made in challenging circumstances and sometimes did need to be made quickly, but in the case of the NZUP "the scale and stated significance of these investments, the limited information available to Ministers, and the multi-generational impact of the investments warranted considerably more rigour".

The fund invested in hospitals and schools as well as $8.7 billion into transport: Roads, rail, public transport, walking and cycling.

He said officials worked hard to meet expectations and warned several times about risks including possible cost overruns and delays, but it was unclear how ministers assessed or managed those risks.

This included a warning from the Infrastructure Commission that large-scale infrastructure projects were not effective for stimulating the economy.

Costs for some programmes had since increased significantly, leading in some cases to delays or rescoping.

Full business cases were not always available or up to date, even when the project's planning was more advanced, he found.

"A lack of transparency and documentation about how and why decision-makers made significant decisions can also create the perception that processes lack integrity," Ryan said.

His office was unable to find specific investment criteria to help agencies identify appropriate projects for funding, and agencies were asked to provide investment options in "extremely tight timeframes", so ministers had too little information to ensure value for money.

The office's staff could find very little information about how other considerations like regional impacts or effects on Māori, Pacific people or others had been assessed, and key stakeholders like Auckland Transport were sometimes not fully consulted over projects they had responsibility for.

Ryan said the smaller SRP had a "largely well-run process" but good reporting on its delivery was "let down by the absence of clear records and a rationale of how and why some decisions were made by ministers".

Many changes were also made to the list of SRP projects during the process leading up to making final decisions, often with discussions between ministers' offices or officials, but it was unclear how or why those decisions were made.

Some SRP projects were later cancelled.

The auditor-general said his concerns echoed "similar findings" from his work on similar schemes like the Strategic Tourism Assets Protection Programme, the Cost-of-Living Payment, the Provincial Growth Fund (PGF) and the reprioritisation of the PGF.

He recommended the Treasury:

• Ensure regular public reporting on progress for all significant investments considered by or requiring consideration by Cabinet
• Seek feedback from relevant agencies on the usefulness of its new guidance on expediting decision-making
• Consider whether the Investment Management System should include minimum requirements and guidance for setting up and running constestable funding processes

The Investment Management System requires agencies to provide updates at key points in the development of investment projects in a consistent and clear format.

The Treasury's new guidance on expedited decision-making was not available when the two funds were set up. Ryan said he was pleased with the guidance, calling it a "positive initiative".

He said his report had taken longer than expected because his office had prioritised other work, and both programmes had since shown good progress on delivering projects.

"However, it has also shown that some of the risks that officials highlighted to ministers have been realised."

The National-NZ First coalition agreement has set out plans for the new government to set up a Regional Infrastructure Fund with $1.2 billion in capital funding over the three-year term.

Political response

Now-Regional Development Minister Shane Jones was infrastructure minister when the two funds were announced by the Labour-New Zealand First coalition in 2020.

He disavowed all responsibility when questioned by RNZ on Wednesday afternoon.

"No, you're not being fair. Matua's been banished for three years. I can't be held responsible," he told reporters. "Grant Robertson was there for three years."

Finance Minister Nicola Willis told RNZ the findings were proof of Labour's "reckless and irresponsible" approach to taxpayers' money.

"What that report lays bare is how cavalier and casual ministers were about committing billions of dollars to projects without the required due diligence, without the care of process, without even documenting what they were doing.

"Multiple infrastructure projects blew out completely and there is now a significant set of issues for our incoming government to clean up."

Willis said she was not concerned about her new coalition partner New Zealand First given its involvement in that infrastructure spending.

"I'm confident that ours will be a government that will have much more disciplined processes," she said.

"I note that things got a lot worse actually in the past three years where New Zealand First wasn't part of the government."

Now-Infrastructure Minister Chris Bishop said the report's recommendations would inform the creation of the new $1.2b Regional Infrastructure Fund agreed to in National's deal with NZ First.

In a statement, Labour's Finance spokesperson Grant Robertson said the party acknowledged and thanked the auditor-general for the report, and accepted the recommendations.

He noted the report had acknowledged the government's need to move quickly in the face of economic uncertainty, and said "at times like this it will not always be possible to run a full or conventional process", but said it of course went "hand in hand with having mechanisms in place to ensure good use of public money".

"There will be differences of opinion as to how to create this balance, and in hindsight improvements could be made."

The SRP was developed in the face of the biggest economic shock in a generation, he said, noting that all projects were agreed in principle, with final approval subject to more detailed analysis; the NZUP was also put together in the face of a slowing economy to provide medium-term certainty to the infrastructure sector, with projects approved in principle subject to further work.

"Not unlike other major infrastructure projects in recent times there has been significant cost pressures that has required additional funding to be allocated. Improvements in the governance and management of the programme have happened as it has evolved, including as a result of evaluations by the government's Implementation Unit."