Failures in cycle trail budget blow-out identified

Independent assessors have identified Southland District Council (SDC) governance and management failures for the massive budget blow-out for the Around the Mountains Cycle Trail.

The 175km trail will eventually link Kingston and Walter Peak Station, via Northern Southland and back country wildnerness in the Mavora area.

However, the original budget of $8 million has spiralled to more than $14 million, and earlier this year the SDC commissioned Deloittes to investigate the financial management of the project.

Costs are still rising. The SDC has resource consent to build about 30km of the trail through the Oreti Valley, but Fish & Game has appealed and wants the trail to follow the neighbouring Mararoa Valley.

An appeal has been heard in the Environment Court but its decision has not been released yet.

The 37-page Deloittes report, released by the SDC this morning (Friday) says the original budget was poorly constructed and did not recognise the need for contingencies or the risks which could affect the project.

Key failures for the budget blow out included
- lack of adequate financial reporting
- poor project management practices
- shortage of the skills needed to manage the project
- failure to pro-actively manage the project risks.

The report said of the original budget, $4 mllion was contributed from central Government and the SDC said it would obtain the rest from grants and other means, requiring no ratepayer funds to be spent.

However, by last year the SDC was expecting to contribute about $9 million.

The report said SDC staff knew the project was going to cost more than $8 million because they had received an initial engineer's report in 2009 which estimated the cost at $13.7 million, including a 20% contingency.

"It is clear from both the documents reviewed and the interviews completed that the council staff who were involved in the preparation of the budget believed that councillors would not approve a budgeted cost of more than $8 million, so reduced the budget to fit within this cap.

"It is not clear... where the $8 million cap came from. It is not clear if there was 'messaging' from [councillors] that they would not approve more than $8 million, or if council staff formed this view in isolation."

In a statement, SDC chief executive Steve Ruru said mistakes had been made and the council should have done better.

"Council seems to have become so engrossed in trying to make the cycle trail happen that it has forgotten to follow some basic project management disciplines," he said.

Mayor Gary Tong said he believed the intentions of those concerned were always to make the project a success for Southland and to keep the costs down.

"However, many of the risks that could have happened, such as Environment Court appeals on the consent and property access issues, have happened, and the costs have ballooned."

Even before the review, the SDC had already recognised the need to strengthen its in-house governance, project management and financial management processes, he said. The role of the activities performance audit committee had been broadened to include risk management, internal audit and financial management and the pro curement and project management processes were being worked on at present.

A separate project governance committee had also been established.

"Council takes responsibility for the errors made and we have learnt from them," Mr Tong said.

Staff had been asked to develop an action plan to ensure the lessons learnt from this review were implemented, he said. 

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