Tauranga council warned of cost over CCO option for civic precinct project

An artist's impression of the future civic precinct Te Manawataki o Te Papa. Image / Supplied

Tauranga city authorities will today consider whether to progress plans to establish a council-controlled organisation to help deliver the controversial and ambitious civic precinct project.

Te Manawataki o Te Papa is expected to cost at least $303 million as part of plans to overhaul the central city area over several years. The project is expected to deliver a one-stop civic precinct including a library, community hub, civic whare, and museum, with additional private sector investment expected for a hotel and convention/performing arts centre.

The proposal initially drew criticism from people, and especially museum opponents, who did not believe the spending was worth it. But community consultation found more people preferred it to the second option presented - though the largest group did not select either option - and the project was approved on May 24*.

In a final report on the civic precinct project, Tauranga City Council has been recommended to consider the benefits of creating a council-controlled organisation (CCO) to manage the delivery of the project, despite a decision to do so likely resulting in "significant cost".

The independent report, carried out by Max Pedersen Consulting, will be presented at today's council meeting.

The report explored the use of council-controlled organisations for the purpose of developing significant community facilities elsewhere in New Zealand. It also sought to identify whether there was potential advantage or benefits for the council if it chose this path to manage the redevelopment of the Tauranga civic precinct.

In his findings, Pederson stated there was "a good case for considering" such a move.

"The potential benefits of a more commercial approach to project governance and management, greater confidence from potential funders and other stakeholders, and the ability to structure a CCO to enhance project certainty, lead me to that conclusion.

"However, the potential benefits of a CCO structure can only be realised if the CCO is established in a manner that empowers it to deliver them."

Pedersen warned that "great care" would be needed in designing the organisation to ensure it could deliver to its potential.

He recommended the council begin a detailed investigation into the establishment of the organisation to not just deliver the civic precinct project but other major community amenity projects also.

The project's existing governance provided by the council commissioners was expected to default to elected council members after the commission's term ends in 2024.

Pedersen said most of the people he interviewed in his investigation had council-controlled organisation experience and the ability to operate with a commercial focus and separation from political direction and council processes were considered key advantages.

"There were no significant disadvantages identified."

Pedersen said the "potential benefits" were: allowing commercial decisions to be made in a commercial environment; freedom from political considerations "that can inhibit and delay commercial decision making"; freedom from the time-consuming bureaucratic process; and enhanced ability "to be nimble in decision-making".

But a potential organisation would need directors with suitable commercial and construction skills. These should be prioritised over whether someone was a local or had local knowledge, he said.

"It is also sub-optimal to appoint council elected members to the board ... as it is important not to confuse the role and responsibilities of shareholders and directors."

Pedersen suggested the council seek people from the private sector.

"Provided that a CCO for the civic precinct development is established with the right mix of commercial skills on the board, and there are adequate delegations in place to enable those skills to be effectively utilised, there are clearly potential benefits in having such a governance structure in place," Pedersen said.

A modified status quo was "unlikely to be as great as the CCO model".

Pedersen also warned of "significant costs" in setting up a council-controlled organisation, referring to Bay Venues' directors' fees and audit costs totalling $353,000 during the year to June 2021.

However, it was more important to weigh the costs with the likely benefits which could be lower net development costs, higher-quality development outcomes, "or other intangible outcomes".

In conclusion, Pedersen said it could be worth it.

He believed there were enough potential benefits such as gaining greater confidence from potential funders, to warrant a more detailed study.

"There is an even greater case for a CCO if it is established to deliver other significant community amenity projects for TCC beyond the completion of the civic precinct development.

"That would enable the commercial focus of the CCO to be applied from the earliest stages of future projects when the fundamental decisions have the most impact on project outcomes are made."

If the council's commission agrees to progress the proposal, community consultation is expected to begin on November 21. Following this, the council is expected to determine whether to proceed with council-controlled organisation plans for the purpose of governing the delivery of civic development projects.

CORRECTION
A line in this story that previously said community consultation had found most people in favour of the council's preferred civic precinct plan has been amended to better reflect the consultation results.