Agenda of Finance and Performance Committee

PALMERSTON NORTH CITY COUNCIL

Finance and Performance Committee MEETING

19 March 2018

Order of Business

Pursuant to Sections 46A(7) and 46A(7A) of the Local Government Official Information and Meetings Act 1987, to receive the Chairperson’s explanation that specified item(s), which do not appear on the Agenda of this meeting and/or the meeting to be held with the public excluded, will be discussed.

Any additions in accordance with Section 46A(7) must be approved by resolution with an explanation as to why they cannot be delayed until a future meeting.

Any additions in accordance with Section 46A(7A) may be received or referred to a subsequent meeting for further discussion. No resolution, decision or recommendation can be made in respect of a minor item.

3. Public Comment

To receive comments from members of the public on matters specified on this Agenda or, if time permits, on other Committee matters.

(NOTE: If the Committee wishes to consider or discuss any issue raised that is not specified on the Agenda, other than to receive the comment made or refer it to the Chief Executive, then a resolution will need to be made in accordance with clause 2 above.)

4. Confirmation of Minutes Page 7

“That the minutes of the Finance and Performance Committee meeting of 19 February 2018 Part I Public be confirmed as a true and correct record.”

5. Palmerston North Airport Ltd - Interim Report for 6 months to 31 December 2017 Page 13

Memorandum, dated 9 March 2018 from the Strategy Manager Finance, Steve Paterson.

6. Palmerston North Airport Ltd - Draft Statement of Intent for 2018/19 Page 31

Memorandum, dated 2 March 2018 from the Strategy Manager Finance, Steve Paterson.

7. Central Energy Trust Wildbase Recovery Update and Cost to Complete Page 61

Report, dated 22 February 2018 from the Senior Property & Parks Planner, Aaron Phillips.

8. Water and Waste Capital New and Renewal 2017-18 Programme Adjustments Page 73

Memorandum, dated 9 March 2018 from the Water & Waste Services Manager, Robert van Bentum.

9. Process for Reallocating and Prioritisation of Underspending on Programmes Page 81

Memorandum, dated 5 March 2018 from the Chief Financial Officer, Grant Elliott.

10. Committee Work Schedule - March 2018 Page 83

11. Exclusion of Public

To be moved:

“That the public be excluded from the following parts of the proceedings of this meeting listed in the table below.

The general subject of each matter to be considered while the public is excluded, the reason for passing this resolution in relation to each matter, and the specific grounds under Section 48(1) of the Local Government Official Information and Meetings Act 1987 for the passing of this resolution are as follows:

General subject of each matter to be considered		Reason for passing this resolution in relation to each matter	Ground(s) under Section 48(1) for passing this resolution
12.	Purchase of Land to Extend Walkways Network	Third Party Commercial and Commercial Activities	s7(2)(b)(ii) and s7(2)(h)
13.	Purchasing Property to Partner with a Housing Provider	Commercial Activities	s7(2)(h)

This resolution is made in reliance on Section 48(1)(a) of the Local Government Official Information and Meetings Act 1987 and the particular interest or interests protected by Section 6 or Section 7 of that Act which would be prejudiced by the holding of the whole or the relevant part of the proceedings of the meeting in public as stated in the above table.

Also that the persons listed below be permitted to remain after the public has been excluded for the reasons stated.

Chief Executive (Heather Shotter), Chief Financial Officer (Grant Elliott), General Manager, City Enterprises (Ray McIndoe), General Manager, City Future (Sheryl Bryant), General Manager, City Networks (Ray Swadel), General Manager, Customer Services (Peter Eathorne), General Manager, Libraries and Community Services (Debbie Duncan), Human Resources Manager (Wayne Wilson) and Communications and Marketing Manager (or their representative (name)) because of their knowledge and ability to provide the meeting with advice on matters both from an organisation-wide context (being members of the Council’s Management Team) and also from their specific role within the Council.

Legal Counsel (John Annabell), because of his knowledge and ability to provide the meeting with legal and procedural advice.

Governance and Support Team Leader (Kyle Whitfield) and Committee Administrators (Penny Odell, Carly Chang and Rachel Corser), because of their knowledge and ability to provide the meeting with procedural advice and record the proceedings of the meeting.

Property Officer (Bryce Hosking), because of their knowledge and ability to assist the meeting in speaking to their report and answering questions, noting that such officer will be present at the meeting only for the item that relate to their respective report.

[Add Third Parties], because of their knowledge and ability to assist the meeting in speaking to their report/s [or other matters as specified] and answering questions, noting that such person/s will be present at the meeting only for the items that relate to their respective report/s [or matters as specified].

PALMERSTON NORTH CITY COUNCIL

Palmerston North City Council

Minutes of the Finance and Performance Committee Meeting Part I Public, held in the Council Chamber, First Floor, Civic Administration Building, 32 The Square, Palmerston North on 19 February 2018, commencing at 9.02am

Members

Present:

Councillor Susan Baty (in the Chair), The Mayor (Grant Smith) and Councillors Adrian Broad, Gabrielle Bundy-Cooke, Vaughan Dennison, Lew Findlay QSM, Leonie Hapeta, Jim Jefferies, Lorna Johnson and Bruno Petrenas.

Non Members:

Councillors Brent Barrett, Rachel Bowen and Aleisha Rutherford.

Apologies:

Councillors Duncan McCann (Council Business) Karen Naylor (Council Business), and Tangi Utikere (Lateness).

Councillor Tangi Utikere entered the meeting at 9.32am during consideration of clause 4. He was not present for clauses 1 to 3 inclusive.

1-18

Apologies

Moved Vaughan Dennison, seconded Rachel Bowen.

The COMMITTEE RESOLVED

1. That the Committee receive the apologies.

Clause 1-18 above was carried 13 votes to 0, the voting being as follows:

For:

The Mayor (Grant Smith) and Councillors Brent Barrett, Susan Baty, Rachel Bowen, Adrian Broad, Gabrielle Bundy-Cooke, Vaughan Dennison, Lew Findlay QSM, Leonie Hapeta, Jim Jefferies, Lorna Johnson, Bruno Petrenas and Aleisha Rutherford.

2-18	Public Comment
	Public comment was received from Mr Frank Goldingham and Mr Ian Arglye both regarding the Gordon Kear forest.
	Moved Susan Baty, seconded Adrian Broad. The COMMITTEE RESOLVED 1. That the public comment be received for information.
	Clause 2-18 above was carried 13 votes to 0, the voting being as follows: For: The Mayor (Grant Smith) and Councillors Brent Barrett, Susan Baty, Rachel Bowen, Adrian Broad, Gabrielle Bundy-Cooke, Vaughan Dennison, Lew Findlay QSM, Leonie Hapeta, Jim Jefferies, Lorna Johnson, Bruno Petrenas and Aleisha Rutherford.

3-18

Confirmation of Minutes

Moved Susan Baty, seconded Jim Jefferies.

The COMMITTEE RESOLVED

That the minutes of the Finance and Performance Committee meeting of 18 December 2017 Part I Public and Part II Confidential be confirmed as a true and correct record.

Clause 3-18 above was carried 13 votes to 0, the voting being as follows:

For:

4-18	Gordon Kear Forest Memorandum, dated 2 February 2018 from the Business Development Executive, Fiona Dredge. Councillor Tangi Utikere entered the meeting at 9.32am.
	Moved Lorna Johnson, seconded Aleisha Rutherford. The COMMITTEE RECOMMENDS 1. That Council retains ownership of the Gordon Kear property, including the pine plantation, as it has a number of current and potentially strategically important social and environmental values combined with providing a commercial return from the forestry investment.
	Clause 4.1 above was carried 14 votes to 0, the voting being as follows: For: The Mayor (Grant Smith) and Councillors Brent Barrett Susan Baty, Rachel Bowen, Adrian Broad, Gabrielle Bundy-Cooke, Vaughan Dennison, Lew Findlay QSM, Leonie Hapeta, Jim Jefferies, Lorna Johnson, Bruno Petrenas, Aleisha Rutherford and Tangi Utikere.
	Moved Brent Barrett, seconded Lew Findlay QSM. 2. That Council considers ways to enhance the community environmental values of the property including carbon, biodiversity, recreation and water supply in order to maximise value to the city. 3. That Council continues to carefully manage the commercial forest estate to maximise overall return at low risk.
	Clause 4.2 4.3 above were carried 14 votes to 0, the voting being as follows: For: The Mayor (Grant Smith) and Councillors Brent Barrett, Susan Baty, Rachel Bowen, Adrian Broad, Gabrielle Bundy-Cooke, Vaughan Dennison, Lew Findlay QSM, Leonie Hapeta, Jim Jefferies, Lorna Johnson, Bruno Petrenas, Aleisha Rutherford and Tangi Utikere.
	Moved Susan Baty, seconded Brent Barrett. 4. That Council does not maintain a watching brief on opportunity and benefits from the sale of the house and small holding.
	Clause 4.4 above was carried 12 votes to 0, with 2 abstentions, the voting being as follows: For: The Mayor (Grant Smith) and Councillors Brent Barrett, Susan Baty, Rachel Bowen, Adrian Broad, Gabrielle Bundy-Cooke, Lew Findlay QSM, Jim Jefferies, Lorna Johnson, Bruno Petrenas, Aleisha Rutherford and Tangi Utikere. Abstained: Councillors Vaughan Dennison and Leonie Hapeta.
	Moved Brent Barrett, seconded Jim Jefferies. 5. That the Chief Executive be instructed to investigate establishment of a shelter for walkers at Toko corner.
	Clause 4.5 above was carried 14 votes to 0, the voting being as follows: For: The Mayor (Grant Smith) and Councillors Brent Barrett, Susan Baty, Rachel Bowen, Adrian Broad, Gabrielle Bundy-Cooke, Vaughan Dennison, Lew Findlay QSM, Leonie Hapeta, Jim Jefferies, Lorna Johnson, Bruno Petrenas, Aleisha Rutherford and Tangi Utikere.
	Moved Leonie Hapeta, seconded Rachel Bowen. 6. That the Chief Executive be instructed to report back on the city water supply options using the Gordon Kear forest.
	Clause 4.6 above was carried 14 votes to 0, the voting being as follows: For: The Mayor (Grant Smith) and Councillors Brent Barrett, Susan Baty, Rachel Bowen, Adrian Broad, Gabrielle Bundy-Cooke, Vaughan Dennison, Lew Findlay QSM, Leonie Hapeta, Jim Jefferies, Lorna Johnson, Bruno Petrenas, Aleisha Rutherford and Tangi Utikere.

5-18

Quarterly Performance and Financial Report - Quarter Ending 31 December 2017

Memorandum, dated 2 February 2018 from the Financial Accountant, Keith Allan and the Head of Community Planning, Andrew Boyle.

Moved Susan Baty, seconded Grant Smith.

The COMMITTEE RECOMMENDS

1. That the Committee receive the December 2017 Quarterly Performance and Financial Report and note:

a. The December 2017 financial performance and operating performance.

b. The December 2017 capital expenditure programme progress together with those programmes identified as unlikely to be completed this financial year.

2. That the Committee recommend to Council that the capital expenditure carry forward values in the 2017/18 Annual Budget, as varied August 2017, for programme 368, Central Energy Trust Wildbase Recovery Centre, be increased by a further $533,499 to the amount of the remaining programme budget.

3. That the Chief Executive be instructed to provide a detailed project plan and timeline around programme 357 Papaooea Place Redevelopment and that this is reported back to the March Finance and Performance Committee.

Clause 5-18 above was carried 14 votes to 0, the voting being as follows:

For:

6-18

Treasury Report for 6 months ended 31 December 2017

Memorandum, dated 8 February 2018 from the Strategy Manager Finance, Steve Paterson.

Moved Lorna Johnson, seconded Jim Jefferies.

The COMMITTEE RESOLVED

1. That the performance of the treasury activity for the 6 months ending 31 December 2017 be noted.

Clause 6-18 above was carried 14 votes to 0, the voting being as follows:

For:

7-18

Committee Work Schedule - February 2018

Moved Susan Baty, seconded Lorna Johnson.

The COMMITTEE RESOLVED

1. That the Finance and Performance Committee receive its Work Schedule dated February 2018.

Clause 7-18 above was carried 14 votes to 0, the voting being as follows:

For:

The meeting finished at 10.43am.

Confirmed 19 March 2018.

Chairperson

PALMERSTON NORTH CITY COUNCIL

Memorandum

TO: Finance and Performance Committee

MEETING DATE: 19 March 2018

TITLE: Palmerston North Airport Ltd - Draft Statement of Intent for 2018/19

DATE: 2 March 2018

AUTHOR/S: Steve Paterson, Strategy Manager Finance, City Corporate

RECOMMENDATION(S) TO Council

1. That the Palmerston North Airport Ltd draft Statement of Intent for 2018/19 be received and its assumptions endorsed apart from the performance measure for targeted net worth which it be recommended to the Company be increased to $50 million.

1. ISSUE

To present and provide comment on the draft Statement of Intent for Palmerston North Airport Ltd (PNAL) for 2018/19.

2. BACKGROUND

PNAL is deemed a Council-Controlled Trading organisation (CCTO) under the Local Government Act 2002. A CCTO must deliver a draft Statement of Intent (SOI) to shareholders by 1 March each year and adopt it by 30 June. The Council must, as soon as possible after a draft SOI is delivered to it agree to a CCTO’s SOI or, if it does not agree, take all practicable steps under clause 5 of Schedule 8 of the Local Government Act 2002 to require the SOI to be modified.

Attached is a letter from PNAL to shareholders explaining the enclosed draft SOI and outlining the key assumptions.

The draft SOI retains the vision from the current year “New Zealand’s leading regional airport”. The mission (aims and values) and strategic objectives sections have been rewritten in a way which enables a more direct link between the two.

It has been assumed the airport will operate as a domestic regional one over the next three years. Further growth in the domestic activity, and as a consequence increased revenue and related operating expenses is forecast.

The capital expenditure programme has two components. Airside and landside infrastructure assets (pavement, Airport Drive, terminal and carpark) are scheduled for on-going upgrades. In addition commercial development (stage 2 of the Massey School of Aviation, an off-site rental car precinct, and subdivision activity) is scheduled.

The draft SOI contains an assumption that capital expenditure of $18.9m will be phased across the three years, funded in part ($3.8m) from the sale of non-strategic land and an increase of $4.4m in term borrowing.

Shareholders’ funds remain significantly greater than 60% of total assets through the three year term of the SOI.

Financial performance targets/forecasts are included vis:

	Draft SOI 2018/19 Budget	SOI 2017/18 Budget
NPBIT : Total assets	4.1%	3.0%
NPAIT : Shareholders’ funds	3.3%	2.1%
Shareholders’ funds: Total assets (>60%)	74%	79%
Interest cover (>2.25)	5.2	8.4
Tangible Net Worth (>$35m)	$62.0m	$63.4m
Dividends - % of NPAT	40%	40%

Non-financial targets relate to:

· Maintaining a customer satisfaction Net Promoter score of 50 or above (measured annually)

· Serving 656,000 passengers during the 2018/19 year increasing to 668,000 for the following year and 680,000 in the June 2021 year (639,000 forecast for 2017/18)

· Maintaining Civil Aviation Rule Part 139 certification and having no adverse findings from the annual audit

· Zero lost time injuries to those who work within the airport community

· Complete roadmap to carbon neutrality

· Achievement of emission reduction targets.

The use of the Net Promoter score methodology (a score of 50 or above represent excellent) replaces the previous customer satisfaction survey target of greater than 90%.

Following consideration of the draft SOI for 2017/18 the Council requested PNAL to scope the process, feasibility and value proposition of gaining carbon neutral certification and to reflect that in the next draft SOI. The issue has been addressed and is reflected in section 9.2 of the SOI as well as in the non-financial targets.

One of the financial targets is to maintain the net tangible worth of PNAL greater than $35m. This value has remained unchanged for many years and is now out of date. The PNAL Board did consider the matter but left it unchanged. At its present level it is rather meaningless and it is recommended that it be increased. A level of $50m is recommended.

The proposed 10 Year Plan 2018-28 assumes PNAL will pay the Council shareholder dividends of $500,000 during 2018/19 increasing by $50,000 p.a. for the following three years. The SOI assumes a payment of $595,000 in 2018/19 and payments of $809,000 and $915,000 in the following two years. These significant increases in dividends will obviously be reliant on achieving the assumed growth and PNAL meeting the appropriate solvency tests.

The Council’s reason for its shareholding in PNAL is to ensure that the capacity and image of the City’s key transportation gateway is consistent with the Council’s economic development objectives. PNAL encapsulates this with specific acknowledgement in clause 11.

As a CCTO PNAL is required under the Local Government Act 2002 to have the following principal objective:

· Achieve the objectives of its shareholders, both commercial and non-commercial, as specified in the Statement of Intent; and

· Be a good employer; and

· Exhibit a sense of social and environmental responsibility by having regard to the interests of the community in which it operates and by endeavouring to accommodate or encourage these when able to do so; and

· Conduct its affairs in accordance with sound business practice.

The Council’s shareholding represents 100% of the issued and paid-up capital.

PNAL’s letter outlines the assumptions which have been made in preparing the draft SOI. These appear reasonable.

3. NEXT STEPS

The Council can either endorse the SOI as presented or make suggestions for change to a greater or lesser extent. No material recommendations are being made for change other than one in relation to the performance measure for the level of net worth of PNAL.

PNAL is obliged to consider shareholder comments then decide whether or not to make any changes to the draft when adopting the final SOI before 30 June 2018.

Attachments

1.	PNAL SOI Cover letter ⇩
2.	PNAL Draft SOI ⇩

Steve Paterson

Strategy Manager Finance

PALMERSTON NORTH CITY COUNCIL

Report

TO: Finance and Performance Committee

MEETING DATE: 19 March 2018

TITLE: Central Energy Trust Wildbase Recovery Update and Cost to Complete

DATE: 22 February 2018

AUTHOR/S: Aaron Phillips, Senior Property & Parks Planner, City Networks

RECOMMENDATION(S) TO Council

1. That Council note progress on the construction of Central Energy Trust Wildbase Recovery facility in the Victoria Esplanade.

2. That Council approve additional borrowing to fund up to $550,000 to complete construction to tendered specification for Central Energy Trust Wildbase Recovery.

Summary of options analysis for

Problem or Opportunity	Central Energy Trust Wildbase Recovery construction has encountered a number of unforeseen issues during construction that have resulted in time and cost overruns. This report seeks Council approval of additional funds in order to complete the construction.
OPTION 1:	Approve additional funding of up to $550,000 to complete construction to tendered specification for Central Energy Trust Wildbase Recovery.
Community Views	No community views have been sought on the proposed additional budget. Central Energy Trust Wildbase Recovery has received significant support from the community including schools, community groups, business and private individuals. It is expected some in the community will be disappointed and object to the cost overrun.
Benefits	Completes the project to the original specifications, ensures no delays due to fundraising, and meets supporters and project aspirations.
Risks	Requires additional funding impacting Councils borrowing.
Financial	An additional $550,000 in funding is required to complete the project to original specification.
OPTION 2:	Underwrite $550,000 and continue to seek additional funding to complete construction to tendered specification for Central Energy Trust Wildbase Recovery.
Community Views	No community views have been sought on the proposed additional budget. Central Energy Trust Wildbase Recovery has received significant support from the community including schools, community groups, business and private individuals. It is expected some in the community will be disappointed and object to the cost overrun.
Benefits	Completes the project to the original specifications, ensures no delays due to fundraising, and meets supporters and project aspirations.
Risks	Councils fundraising support is stretched with many projects in the pipeline and CET Wildbase Recovery having thought to have been completed in terms of fundraising. The community support has been extensive to date and whether further fundraising would be successful is doubtful. The entire underwrite amount may be required should further fundraising be unsuccessful.
Financial	The full underwrite may be required to complete the project.
Contribution of Recommended Option to Council’s Strategic Direction	Active Recreation Strategy 2013 seeks “City reserves have unique features emphasising their individuality”. Central Energy Wildbase Recovery is a new development of the aviaries at the Victoria Esplanade which are a feature of the reserve. The Biodiversity Strategy 2013 includes the action “Develop the Aviary in the Victoria Esplanade for injured birds and reptiles”.

Rationale for the recommendations

1. Overview of the problem or opportunity

1.1 The Central Energy Trust Wildbase Recovery project is a major capital project in the 2017/18 year. It is also a significant development in the Victoria Esplanade.

1.2 The approved Project Budget totals $5,896,177, covering all aspects of the Project not just the Construction Contract. This sum includes a $330,000 contingency which has proved to be inadequate and is now fully subscribed against.

1.3 Accordingly the Project Steering Group has initiated a request to Council that the Project Budget be increased by $550,000 to a sum of $6,446,177, which they consider is realistic to see the Project through to a successful conclusion.

1.4 The revised Project Budget of $6,446,177 includes a contingency sum of $181,464.

1.5 Details of these budgets are provided under Project Financial Statement #8 from the Quantity Surveyor – Rider Levett Bucknall, attached as Appendix One.

1.6 The revised Project Budget represents a 9% increase from the Approved Budget, should the full contingency sum ($181,464) be called upon.

1.7 This report seeks an additional $550,000 in order to complete Central Energy Trust Wildbase Recovery to the original specification.

2. Background and previous council decisions

2.1 As at the end of January 2017 the build is approximately 50% complete.

2.2 The 16 February 2017 Project Managers Report is attached in Appendix Two. Work is running three months behind with one month due to the unforeseen ground works and 2 months due to aviary pole design coordination and redesign.

Cost Overruns

2.3 The significant variations have been :

a) Unexpected work due to soft ground conditions, totalling $166,845.77

Made up of:

· $97,622.76 – for ground improvement under walls

· $38,622.40 – additional base course under aviaries

· $8,784.48 – provision of an adequate crane stand area

· $7,000 – dig out barrier soft spots

· $10,327.31 – temporary electrical cable (required because of additional depth of foundations affecting existing cable)

· $4,488.82 – fill a void under the walk through aviary footing.

b) Plant sheds (for water reticulation pumps and filters) – revised design from sunken below ground level pits following detailed design coordination and review, $24,661.64.

c) Additional services :

· $15,283.80 – design work

· $10,000 – drainage

· $10,000 – sewer pump requirements.

d) Aviary pole changes due to redesign required cost totalling $138,790.50

Made up of :

· $84,541 – new and upsized poles including their install

· $29,250 – changes for day rates due to delays

· $25,000 – design costs

· $860.60 – building consent amendment work.

e) Signage costs of $80,000

· Some of which is expected to be offset by sponsorship, but values are still being determined so all of the cost has been factored in at this stage ie taking a conservative approach.

Funding update:

2.4 In March 2017 when Council approved the award of tender the fundraising total was still $467,792 short of the total project budget.

2.5 Council approved an underwrite of $440,000 (Resolution 40-17) so the construction could proceed on the basis this shortfall would be addressed as far as possible. Officers signalling they believed the majority could be covered through mesh specification changes and additional fundraising. That funding gap was successfully filled between specification changes to aviary mesh and education centre flooring as well as further fundraising.

2.6 Further support since the December 2017 report has been:

· Winstone Wallboards confirmed support for the GIB wall linings. The logistics of this support are still being worked through and a value will be in the low thousands.

· Wildbase Recovery Community Trust has received approximately $5,900 in interest earned and a donation from a school.

· Capture Signs are currently considered the sum of their sponsorship now that they have the final designs for signage and quoted normal costs on those.

Timeframes

2.7 Some delays in the first 6 months of construction were incurred due to the poor weather over that period and the additional work required due to soft ground.

2.8 Furthermore the issue has arisen with the pole support structure for the alternative aviary mesh. This is currently being assessed by the design team in conjunction with the main contractor and his mesh supply subcontractor. That assessment will address areas of responsibility and cost implications. It may also lead to a time extension.

2.9 Construction is now expected to be complete at the end of June 2018.

2.10 Massey Vets note the need for a one month quarantine period where pest exclusion and elimination is undertaken along with any commissioning issues that need to be dealt with.

2.11 Opening Central Energy Trust Wildbase Recovery to the public is therefore likely to be in the end of August 2018.

3. Description of options

3.1 Option One: Approve additional funding of up to $550,000 to complete construction to tendered specification for Central Energy Trust Wildbase Recovery.

3.2 Option Two: Underwrite $550,000 and continue to seek additional funding to complete construction to tendered specification for Central Energy Trust Wildbase Recovery.

4. Analysis of options

4.1 Option One: Approve additional funding of up to $350,000 to complete construction to tendered specification for Central Energy Trust Wildbase Recovery.

4.1.1 The Project Managers, Programme Managers and Cost Consultants have reviewed all possible remaining costs and estimated that up to $550,000 may be required to complete the project as per the tendered specification.

4.1.2 The $550,000 additional budget required includes an allowance of $181,464 for further unforeseen variations if required to ensure the project can be completed without further funding requests.

4.1.3 The project is a significant and complex one. It appears a more conservative contingency allowance should have been made at the start of the project and several decision points would have benefited from taking additional time on investigation and coordination.

4.1.4 There is significant community support for the project evidenced by the donations, sponsors and in-kind contributions to the project.

4.1.5 Council contributing up to an additional $550,000 would take the ratepayer contribution to construction from $1.37 million to $1.92 million. At $1.92 million Councils contribution would 30% of the total build cost of $6.446 million.

4.2 Option Two: Underwrite $550,000 and continue to seek additional funding to complete construction to tendered specification for Central Energy Trust Wildbase Recovery.

4.2.1 The benefits compared to Option One is the potential for some supporter assistance to reduce the Council spend on the project.

4.2.2 The risk is that the Council underwrite will deter others from supporting the shortfall in funding.

4.3 It is noted that the option of halting work until the remainder of funding was secured was considered but assumed unrealistic. The contractual obligations to complete the work would mean the delays would increases the cost of the project requiring further fundraising. In addition it would have a negative effect on the numerous in-kind donors and sponsors, and the commitments made.

5. Conclusion

5.1 Central Energy Trust Wildbase Recovery has been a complex project in terms of design, build, project management and funding arrangements. Costs have overrun and along with them construction timeframes.

5.2 The shortfall in funding is estimated at $550,000, including allowing an additional $181,000 in contingencies for the remainder of the build.

5.3 It is recommended that Council approve the additional funding so that the project can be completed in a confident and timely manner.

5.4 It is also recommended that an in-depth debrief be conducted so that lessons can be applied to future projects.

6. Next actions

6.1 Continue with construction and opening plans.

7. Outline of community engagement process

7.1 No direct community consultation has occurred during the construction phase.

Compliance and administration

Does the Committee have delegated authority to decide? If Yes quote relevant clause(s) from Delegations Manual	No
Are the decisions significant?	No
If they are significant do they affect land or a body of water?	No
Can this decision only be made through a 10 Year Plan?	No
Does this decision require consultation through the Special Consultative procedure?	No
Is there funding in the current Annual Plan for these actions?	No
Are the recommendations inconsistent with any of Council’s policies or plans?	No

Attachments

1.	CET Wildbase Recovery Project Financial Statement to 1 March 2018 ⇩
2.	Project Manager (Beca) Report period ending 16 February 2018 ⇩

Aaron Phillips

Senior Property & Parks Planner

PALMERSTON NORTH CITY COUNCIL

Memorandum

TO: Finance and Performance Committee

MEETING DATE: 19 March 2018

TITLE: Water and Waste Capital New and Renewal 2017-18 Programme Adjustments

DATE: 9 March 2018

AUTHOR/S: Robert van Bentum, Water & Waste Services Manager, City Networks

RECOMMENDATION(S) TO Council

1. That the budget for the 2017/18 Water Capital New “Programme 593 – Water Safety and Security Mitigation” be revised from $170,000 to $407,000 by approval of additional unbudgeted funding of $237,000.

2. That the budget for the 2017/18 Wastewater Capital New “Programme 630 – City Wide - Seismic Strengthening to Wastewater Structures” be revised from $100,000 to $200,000 by approval of additional unbudgeted funding of $100,000.

3. That a new 2017/18 Rubbish and Recycling Capital New Programme called “Materials Recovery Facility – Air Quality Improvements” with a budget of $50,000 be created by approval of unbudgeted funding of $50,000.

4. That the budget for the 2017/18 Wastewater Capital Renewal “Programme 621 - Digester Lid Refurbishment” be revised from $500,000 to $555,000 by approval of additional unbudgeted funding of $55,000.

5. That the budget for the 2017/18 Wastewater Capital Renewal Programme “1056 – Totara Rd Replacement of Inlet Screens be revised from $1,300,000 to $1,400,000 by approval of additional unbudgeted funding of $100,000.

1. ISSUE

1.1 For a variety of reasons a number of 2017-18 water and waste capital new and renewal programmes are predicted to exceed their approved budgets. In addition Officers are faced with completing a number of urgent and critical projects for which there is either no approved funding or inadequate funds to address consent compliance and health and safety risks. Reasons for the additional funding requirements include:

· Higher costs associated with unforeseen asset condition which could not be confirmed prior to the work being undertaken

· Higher tender prices associated with advancing work in the current very tight contracting environment

· Public health and supply risks which have emerged since the programme budgets were developed

· Health and safety risks uncovered following recent detailed project scoping

1.2 Further detail on the specific programmes and reasons for project budget increases are set out in more detail in the report.

2. Capital New Programmes

2.1 Additional budget approvals are requested in respect of the following capital new programmes namely:

· Water Capital New Programme 593 – Water Safety and Security Mitigation, +$237,000.

· Wastewater Capital New Programme 630 – City Wide - Seismic Strengthening to Wastewater Structures, +$100,000

· Rubbish & Recycling Capital New – New Capital Programme – Materials Recovery Facility – Air Quality Improvements, +$50,000

3. Water capital New Programme 593 – Water Safety and Security Mitigation

3.1 Council approved Programme 593 – Water Safety and Security Mitigation in 2016-17 to undertake a range of water safety and security improvement projects to ensure Council was being pro-active in addressing supply risks which had emerged during the initial stages of the Havelock North Enquiry. The scope of work completed following a small carry forward into the 2017-18 year has included:

· purchase of a back-up pump for Roberts Line bore 2

· installation of on-line chloramine monitors at the bore pump stations

· minor capital improvements at the Turitea Water Treatment Plant to close off contamination pathways to the treated water lines

3.2 In December 2017 the government inquiry on the Havelock North water contamination event, released its stage 2 report which included more than 100 recommendations for action. The report is currently with government for consideration and the water industry is awaiting confirmation of which of the recommendations will be adopted and implemented. While officers consider it prudent to await the final decision of government, there are some clear indications of the likely areas for change in respect of Drinking Water Standards and compliance requirements including:

· tighter standards around the design and construction of bore heads to ensure they are safe from surface water contamination

· stronger powers for Drinking Water Assessors to ensure compliance with the Drinking Water Standards

3.3 Around the same time as the inquiry report release, Council incurred a number of technical non-compliances in respect of the NZ Drinking Water Standards (NZDWS) which were related to compliance with monitoring requirements. Several of these related to and were compounded by on-going problems with communication between the Turitea WTP and Council’s main telemetry network and CAB server.

3.4 Reflecting on the inquiry recommendations and with a view to demonstrating a proactive approach to addressing recent technical non-compliances, Officers have identified some further immediate improvements to provide greater confidence that Council will comply at all times with the NZDWS and address a number of residual security and safety risks. The specific projects identified include:

· installation of the new bore pump purchased for Roberts Line Bore 2 to address supply constraints and cavitation risks

· raising the bore head at the Takaro well to eliminate

· upgrading the telemetry link to the Turitea WTP by moving the aerial to a location with a direct line of site to Council’s network

3.5 The extended dry weather period which the city has experienced has highlighted the constraints of the current bore supply to the Kelvin Grove zone. Supply is reliant on the Roberts Line Bore 2 installation and recent heavy demand has identified the capacity limitation associated with the current bore pump and installation. The source constraints have necessitated careful control of delivery flows.

3.6 While installation of the new bore pump was planned to occur soon, the delay to development and commissioning of the Railway Road bore and the yield constraints at the Roberts Line Bore 2 have highlighted the need for this to occur earlier than anticipated. The new pump will allow for installation at a lower level in the bore, increasing the available yield from 260 m3/day to 400 m3/day i.e. a 50% increase. This will secure supply in the Kelvin Grove zone ahead of the completion of the new Railway Road bore.

3.7 The installation of the pump was budgeted to occur in the 2019/20 year following redevelopment of the Roberts Line Bore 2 once the new Railway Line bore and Keith Street bores are scheduled to be in operation. However, the work needs to be brought forward to ensure capacity is sufficient to meet periods of high demand. While peak summer conditions have passed temporary high demand periods are still considered likely. The yield of the bore has further deteriorated during the summer period resulting in the original bore pump being exposed to the risk of impellor cavitation.

3.8 A firm budget estimate of $50,000 has been secured to lift the existing pump and install the new pump inclusive of new longer cables, a Hydrostatic level sensor and all the labour, machinery and telemetry programming required.

3.9 As already highlighted, the Havelock North enquiry reports identified one of the potential risks contributing to contamination of groundwater to be the construction of boreheads inside below ground chambers. The City currently has 3 bores in which the bore head is installed in a below ground chamber, namely Roberts Line bore 1, Papaioea Park bore 1 and Takaro Park bore. The Roberts Line and Papaioea Park bores will be retired following the commissioning of the new Railway Road and Papaioea Park bores in the next 6 months. Takaro Park bore being one of the best performing bores in the city is not scheduled for replacement or redevelopment in the near future. It is proposed therefore that the bore head be raised to ensure its design is best practice and minimises the risk of contamination.

3.10 A firm quote of $120,000 has been obtained for the scope of work to raise the bore head inclusive of removal of the existing concrete manhole and base, bore riser and pump, extension of the bore casing and riser to above ground level and construction of backflow prevention and a new concrete pad to meet industry best practice security requirement. The scope of work will include new upgraded electrical connections and telemetry programming.

3.11 As highlighted Council has had a number of technical non-compliances with respect to the NZ Drinking Water Standards, which can be traced back to radio communication link outages at the Turitea WTP. Officers have had a number of assessments undertaken to identify the best and most durable solution. The recommended solution is to extend power and fibre cables from the current transmission site to a new location which is free from physical interference. The works will ensure telemetry data can be reliably and accurately transmitted at all times from the Turitea Water Treatment Plant to the nearest Inspire Network Access Point. The firm scope and cost estimate for the work including installation of the cables and power, moving of the transmitter tower, hard wiring and computer programming works has been received for the sum of $67,000.

3.12 The total cost of additional capital expenditure under Programme 593 for the three initiatives outlined above is $237,000. In all cases the scope of work has been confirmed, contractors identified and firm prices obtained. Officers are confident the works can be completed if the additional funding is approved within the 2017-18 financial year.

4. Wastewater Capital New Programme 630 – City Wide - Seismic Strengthening to Wastewater Structures

4.1 Council has been implementing a multi-year programme of work to seismically strengthen the wastewater structures across the city. The majority of this work has been associated with seismic assessment and strengthening of wastewater pump stations. To date upgrades of Massey Pump Station and Maxwell’s Line have been completed.

4.2 The remainder of the strengthening of the some of the smaller pump stations was programmed to be completed this year. An upgrade of Jickell Street Pump Station will be completed in the next month, leaving College Pump Station as the one outstanding pump station facility requiring upgrading.

4.3 Initial seismic assessment two years ago indicated that the College Street Pump Station wet well achieved close to 60% of the new building standard in terms of earthquake resilience based on an importance level of IL2. As a result the strengthening work was scoped to cover only the upgrade to the above ground structure which was identified as earthquake prone.

4.4 As part of the engagement of a consultant to complete the design of the upgrade a review of the wet well structure’s seismic performance was also completed. During the interim Officers have also revised their assessment of the target importance level for the major pump stations in the city and increased this to IL3. The consultant has assessed the wet well at only 45% of IL3 and therefore earthquake prone.

4.5 Officers are now concerned that money spent on addressing the above ground structure will be wasted if the wet well is not able to withstand the design earthquake. Officers now consider it prudent to upgrade the entire pump station and construct a new wet well. This approach would simplify completion of the overall project but unfortunately the currently allocated budget is insufficient.

4.6 Officers seek additional unbudgeted capital funding of $100,000 to enable a new resilient pump station to be constructed. Options to fast track construction within the current financial year include using a prefabricated pump station chamber constructed from fibreglass. Completion of this project in the current financial year will conclude investment in strengthening of the major wastewater pump stations across the city.

5. new capital New Programme – materials recovery facility – air quality Upgrade

5.1 An air quality assessment inside the Materials Recovery Facility was conducted late in 2017 in response to contractor concerns about staff welfare when working during hot summer periods. The assessment considered air quality issues within both the administration building and main MRF building. The report has recommended installation of a filtered fresh air system for the administration block at a cost of $5,000.

5.2 The recent extended hot summer has also identified that the air circulation within the sorting facility is inadequate to provide both comfortable and safe working conditions for the sort staff. The existing system is largely designed around extracting air in very isolated locations within the MRF to control dust. It provides inadequate air exchange and circulation.

5.3 An upgrade of the existing system has been scoped and costed which will utilise the existing system, modify it from an air extraction system to a forced air ventilation system and extend the zone of influence to cover all the working platforms with the facility. The upgrade will provide improved air exchange, suppress dust levels and improve working conditions for staff particularly during warm summer months. A firm quote of $45,000 has been received for the work.

6. Budget summary for Additional funding for capital renewal programmes

6.1 The additional capital new funding is summarised in Table 1 below.

Table 1 Proposed Capital New Programme Budget Adjustments

Prog ID	Description	2017/18 Budget	Proposed 2017/18 Budget	Change
	Capital New
	Additional Budget Requests
TBA	Rubbish and Recycling – New Programme – Air Quality Upgrade	$0	$50,000	$50,000
593	Water - Water Safety and Security Mitigation	$170,000	$407, 000	$237,000
630	Wastewater - Seismic Strengthening to Wastewater Structures	$100,000	$200,000	$100,000
	Totals	$270,000	$657,000	$387,000

7. Capital Renewal Programmes

7.1 Approval for additional unbudgeted expenditure is also requested in respect of the following two capital renewal programmes:

· Programme 621 - Digester Lid Refurbishment – additional $55,000

· Programme 1056 – Totara Rd Replacement of Inlet Screens – additional $100,000

7.2 In respect of Programme 621 – Digester Lid Refurbishment the budget increases are associated with:

· An additional $15,000 in unforeseen costs associated with emptying sludge from the digester due to the presence of significantly more solids and rags than encountered in Digester 1. The costs are a combination of labour and equipment costs associated with emptying and the large landfill disposal costs.

· Higher than budgeted and anticipated costs due to the presence of greater corrosion than was present in Digester 1.

· Funding for some $15,000 of additional costs associated with refurbishment of Digester 1 which were spend against the 2017-18 budget

7.3 In respect to Programme 1056 – Totara Rd Replacement of Inlet Screens the additional costs are associated with;

· The higher than anticipated cost of installation of the replacement overhead gantry due to the lack of contractor availability. The extremely tight supply situation in respect of civil contractors has meant that sourcing a competent contractor who was available meant having to accept a substantially higher tender price than anticipated.

· A significant change in the scope of work relating to the gantry installation. It was originally envisaged that a gantry of similar design to the existing unit could be fitted, however it soon became apparent that it would not meet the lift and manoeuvrability requirements for the new screen. The re-design has required significant additional structural upgrading of the screen superstructure which has incurred significant additional design costs.

· The additional budget funding represent an increase of 7.6% over the overall project budget of $1,300,000.

Table 1 Proposed Capital Renewal Programme Budget Increases

Prog ID	Description	2017/18 Budget	Proposed 2017/18 Budget	Change
621	Wastewater - Digester Lid Refurbishment	$500,000	$555,000	$55,000
1056	Totara Rd – New Inlet Screens	$1,300,000	$1,400,000	$100,000
	Totals	$1,800,000	$1,955,000	$155,000

Compliance and administration

Does the Committee have delegated authority to decide? If Yes quote relevant clause(s) from Delegations Manual <Enter clause>	No
Are the decisions significant?	No
If they are significant do they affect land or a body of water?	No
Can this decision only be made through a 10 Year Plan?	No
Does this decision require consultation through the Special Consultative procedure?	No
Is there funding in the current Annual Plan for these actions?	No
Are the recommendations inconsistent with any of Council’s policies or plans?	No

Attachments

Nil

Robert van Bentum

Water & Waste Services Manager

PALMERSTON NORTH CITY COUNCIL

Memorandum

TO: Finance and Performance Committee

MEETING DATE: 19 March 2018

TITLE: Process for Reallocating and Prioritisation of Underspending on Programmes

DATE: 5 March 2018

AUTHOR/S: Grant Elliott, Chief Financial Officer, City Corporate

RECOMMENDATION(S) TO Finance and Performance Committee

1. That the Committee receive the report

1. ISSUE

Whether the Council needs a process to prioritise any requests for additional expenditure.

2. BACKGROUND

The Operational and Capital Programme Budgets are approved by Council every year via the 10 Year Plan or Annual Budget process, and varied during the year by resolution of Council.

The current financial delegations from the Council to the Chief Executive allows for the Chief Executive to enter into any transaction provided the total amount of the Operating Budget or Capital Programme Budget in respect of an Activity (as defined in the 10 Year Plan or Annual Budget) is not exceeded.

The Chief Executive may authorise an increase in expenditure over the Operating Budget or Capital Programme Budget provided that:

1) Savings are made from other Operating Budgets or Capital Programme budgets to offset the increase.

2) The aggregate of budget variations do not exceed more than 50% of the Specified Sum or 30% of the Operating Budget or Capital Programme budget (whichever is the lesser), currently the max is $800,000 pa.

3) Report the budget variations to Finance and Performance Committee.

For any expenditure requests that the Chief Executive receives that are outside the above parameters, the prior approval of Council is required. These requests mainly cover events or timing(s) that where not foreseen during the budgeting process.

3. Compliance and administration

Does the Committee have delegated authority to decide? If Yes quote relevant clause(s) from Delegations Manual	Yes
Are the decisions significant?	No
If they are significant do they affect land or a body of water?	No
Can this decision only be made through a 10 Year Plan?	No
Does this decision require consultation through the Special Consultative procedure?	No
Is there funding in the current Annual Plan for these actions?	Yes
Are the recommendations inconsistent with any of Council’s policies or plans?	No

Attachments

Nil

Grant Elliott

Chief Financial Officer

Susan Baty (Chairperson)
Jim Jefferies (Deputy Chairperson)
Grant Smith (The Mayor)
Adrian Broad	Leonie Hapeta
Gabrielle Bundy-Cooke	Lorna Johnson
Vaughan Dennison	Karen Naylor
Lew Findlay QSM	Bruno Petrenas