Nick Davis and Sarah Baddeley, both Partners at MartinJenkins, have significant experience in the reform of water-service delivery, including advising local councils on progressing individual and joint arrangements. Here Nick and Sarah examine the next round of questions that councils should be considering as they address the Government’s requirements for Local Water Done Well.
For New Zealand councils, establishing effective water-services organisations under the Local Water Done Well framework requires careful planning and decisive action.
Many councils are already consulting on proposals to establish water-services organisations, but they also need to be thinking about the next stage of decision making. While the legislation provides a foundation, councils are given significant discretion in how they approach this establishment phase.
Based on our experience working with councils across the motu, here are the three things we think councils need to be getting right, right now.
1. AGREEING ON A TARGET ESTABLISHEMENT DATE
Although the legislation sets certain time constraints, the design and pace of implementation will differ substantially between councils, including whether they continue to deliver services inhouse or are intending to set up a water-services organisation or joint arrangement. Setting a clear, realistic target date for implementation is perhaps the most fundamental decision councils must make early in the process.
There are a few pointers they can look to, including a statutory deadline of 30 June 2028 for water-services providers to become financially sustainable.
Financial imperatives
Councils’ assessments of water-services sustainability and viability are revealing significant financial challenges for many of them, with affordability being a big constraint. We can see this coming through in the consultation documents that councils across the country are releasing.
Operating deficits, deferred maintenance, and looming capital-investment requirements are putting urgent pressure on councils to increase their water revenues, and they provide added impetus for transitioning to efficient service-delivery structures to maintain affordability. For councils facing immediate financial constraints, accelerating the establishment timeline may provide critical cost savings and access to alternative and more attractive financing structures created through a joint water-service organisation.
However, rushing the establishment phase without adequate preparation carries its own risks. Councils must balance financial urgency against the need for the right design and effective implementation. It’s critical to take the time to work properly through commitment agreements, constitutions, and other foundational documents, as this can save a lot of heartache later.
Workforce considerations
Uncertainty for employees during long transition periods often leads to the flight of top talent precisely when these skills are most needed, and makes it nearly impossible to attract new high-calibre professionals to the sector. This is a risk both for individual councils and for the sector as a whole – New Zealand can’t afford that potential loss of talent.
Setting a clear establishment date provides staff with certainty about their future, helping to minimise attrition during the transition and creating a compelling proposition for prospective employees. Clear, early decisions on organisational structure, location strategies, and career-development pathways further support stability in the workforce. Without this clarity, councils risk losing their most experienced staff to competing sectors or regions where career pathways appear to be more secure.
Most councils provide shared services to their water-services business units, so understanding the impact on the balance of council operations, and understanding how transition arrangements can lessen these impacts, will be important through this next phase.
The scale of change
The complexity of establishing water-service organisations varies dramatically depending on several factors, including the number of participating councils; the current state of asset-management systems and data quality; the diversity of existing operational models, service levels, and tariff structures; legacy technology platforms and integration requirements; and the capacity and capability to deliver a large transformation programme alongside business as usual.
Given this, water-services organisations will probably continue to rely on councils for critical functions through the transition period, including billing customers. These shared arrangements need to be contracted, with water-services organisations paying councils for these services until their systems mature and they can stand on their own feet.
Councils joining larger, more complex arrangements should allow more time for the establishment phase than those forming simpler partnerships. On the other hand, extended transitions carry their own costs and risks.
Based on our experience at MartinJenkins in establishing other public entities, 12 to 18 months is a reasonable establishment period for most joint entities. This allows for planning work to start well before the formal establishment decisions. Councils should resist open-ended timeframes that create prolonged uncertainty. Putting a stake in the ground helps to sharpen minds and focus on what matters.
2. ESTABLISHING ENDURING GOVERNANCE ARRANGEMENTS
Governance arrangements must withstand multiple transitions: from the commitment phase, through the council interregnum and election period, the establishment phase, and into ongoing operations. Many previous reform attempts have been derailed by a failure to establish durable governance.
Getting early clarity on governance
Early in the process, councils should establish clear decision-making frameworks with appropriate delegations from councils, so that it’s clear who’s accountable, and also transition governance bodies with sufficient authority and resources. Councils also need to establish mechanisms for continuing momentum through local-government elections (including enabling resolutions).
These arrangements must enable confident decision-making while maintaining appropriate accountability to participating councils.
Independence and expertise
For some councils there’s a case for considering independent expertise. Transformations of any scale do take dedicated focus and effort.
Where multiple councils are involved, appointing an independent chair for the establishment phase offers significant advantages. The chair can help address and resolve the inevitable tensions between participating councils while maintaining a focus on the ultimate objectives of the new joint entity rather than the interests of individual councils.
An independent chair can also provide specific expertise in establishing organisations, and continuity across electoral boundaries.
Balancing technical and democratic input
Successful governance combines democratic oversight with technical expertise. Governance structures should include clear roles for elected members in setting expectations – and here, consider a sub-committee to enable elected members to develop deep expertise on the topic.
Shareholder councils can provide an effective mechanism for coordinating councils’ input into setting expectations and board appointments, and avoid having multi-council water-services CCOs being pulled in multiple directions.
Governance structures should also include independent directors with relevant industry and governance expertise, mechanisms for meaningful partnerships with iwi and hapū, and advisory panels to provide specialist input on complex issues.
The governance model must also clearly distinguish strategic direction from operational management, to ensure the new entities are set up for success in delivering water services for communities from the get-go.
3. WEIGHING UP THE OPTIONS FOR WATER SERVICES PLANS
The legislation provides flexibility for councils to develop either individual or joint Water Services Plans. They can develop individual plans even when establishing joint organisations. This represents a critical early decision with multiple viable approaches.
Individual Water Services Plans
Individual plans offer several advantages:
- Much of the groundwork has already been completed through councils' assessments of the viability and sustainability of their current arrangements.
- Individual plans allow each council to address its unique local circumstances and priorities.
- They potentially streamline decision-making processes within individual councils.
- They can be completed more quickly where councils have already done substantial analysis.
- They also provide a baseline for later discussions about joint arrangements.
Joint Water Services Plans
Joint planning also offers distinct benefits:
- Joint plans create a shared understanding of challenges and opportunities from the outset.
- They establish consistent methodologies for assessing and valuing assets.
- They identify potential improvements and efficiencies for services earlier in the process.
- They build working relationships between council teams.
- They provide a foundation for later detailed design work.
Hybrid approaches
For some councils our firm is supporting, a hybrid approach combining elements of both models is attractive. Here, councils develop individual plans but with coordinated methodologies and assumptions and with a joint implementation strategy. They also include shared analytical frameworks, while maintaining council-specific components.
Essentially, this hybrid approach comes down to individual plans but with clear common elements.
Implementation
Given the flexibility the legislation allows, it’s a good idea to consult with the Department of Internal Affairs early in the process to test whether your proposed approach meets the statutory requirements. This can help identify potential compliance issues before you commit significant resources to that approach. Councils can also get legal advice on this.
Whichever approach councils choose, the planning process should establish a clear pathway towards better water services while also respecting the unique circumstances of each participating council.
SETTING COMMUNITIES UP FOR A WELL-MANAGED PROCESS
Successfully establishing joint water-services entities under Local Water Done Well requires councils to make clear decisions early on about establishment timeframes, governance arrangements, and planning approaches. Those decisions will shape the next phase of the reform and set communities up for a well-managed process.
By focussing on these critical decisions early on, councils can create momentum while also maintaining appropriate control over design and implementation. The resulting entities will be better positioned to address the significant water infrastructure challenges facing communities across Aotearoa New Zealand.
