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United Water's contract with the Queenstown Lakes District Council to maintain and operate the district's water supply, waste water treatment and stormwater has been put up for assessment and re-negotiation.
When the contract was awarded in 2008, it stated United Water could be allowed a "performance-based renewal" of the contract after three years.
Though the contract runs until July 2011, the council's utilities committee has asked QLDC chief executive Debra Lawson to start an appraisal, which will lead to negotiations of the conditions for a renewal.
Contract manager Uwe Kaeding, of United Water, in Queenstown, said the company was keen to renew the contract.
"United Water is committed to serving the Queenstown Lakes community and has developed a good working relationship with QLDC. We understand what is necessary to operate and maintain the region's water assets and will work closely with council in an effort to reach agreement on a contract renewal," Mr Kaeding said.
Ms Lawson said the first step would be to identify where the council would seek enhanced delivery of the service.
"The council is placing an emphasis on operational efficiency and value for money in all of the work that it does and it is appropriate that this contract should be assessed and agreed on those factors," she said.
Cr Vanessa van Uden, who had in the past spoken against the contract with United Water, agreed with the emphasis on operational efficiency and value for money.
She said it was important for the councillors to have a clear picture of how much it was costing the ratepayers to get the service they asked for.
QLDC 3 waters manager Gerry Essenberg had previously told the Queenstown Times the council now had a much better understanding of the state of the water network and the cost to maintain it than it had two years ago.
"It makes a solid case for reassessment of the contract's terms and conditions," Ms Lawson said. "If the outcome is for renewal, it will be on different contract terms."
Cr van Uden said she was not happy with the type of contract, which specified only the required level of service. The contractor then made a claim for the costs each month. There was, therefore, no upper limit for the cost set in the contract, Cr van Uden said.
The council had to be vigilant in managing that type of contract, she said.
"In my opinion, there is too much risk for the ratepayers," she said.
"I think the contractor should carry more of the risk in terms of keeping costs down," Cr van Uden said.
The council's water operations budget is in the red by about $800,000 for this financial year, which had concerned councillors.
Mr Kaeding put this down to United Water having to do more work than expected on Queenstown's water network.
"Over the past two years United Water has undertaken almost double the amount of work that was indicated when we tendered for the original contract.
"The format of the current contract is that QLDC pays for the amount of work that United Water does.
"Costs to QLDC have been higher than anticipated because of the higher level of work.
"If United Water's cost to QLDC is calculated on a cost per job basis, our costs are, in fact, more than 30% lower than tendered.
United Water would continue to work with the QLDC to reduce costs even further where possible, Mr Kaeding said.
Comparing the matter to the example of renewing the council's roading contract in 2009, which she said councillors had to fight to get an insight into at the last minute, Cr van Uden said was happy with the "timely process" of the negotiations the council was now starting for the water contract.
Ms Lawson said the negotiations had been timed to ensure the council had adequate time to "go to the market" if the it was not able to reach a satisfactory renewal with United Water.