Transport Agency lashed for ‘retrospective’ $100k tender
A report allegedly held back by NZTA until after Parliament rose has raised serious questions about three major contracts involving a senior manager and an associate
Consultancy firm Deloitte has delivered a damning report on the New Zealand Transport Agency that says it failed to follow its own processes, had un-managed conflicts of interests, operated on unsigned contracts, and paid out money for services for which it hadn't contracted.
The end result was a near-useless App developed by a contact of an NZTA manager that cost the taxpayer $198,000, and a more lucrative contract that saw the same company reap $1.5m in fees from civil contractors.
Newsroom understands NZTA's Zero Harm Manager Martin McMullan and his "friend" Martin Riding - they're referred to as 'ZHM' and 'Person A' in the text - are the two people at the centre of events within the report.
Although the report, which Newsroom has obtained, doesn't explicitly name them it reveals both ZHM and Person A once resided at the same address - a known address for McMullan and Riding.
McMullan told Newsroom our questions were the first he had heard of the report: "Without seeing it I’ve got nothing to say."
All of these details were revealed as part of a procurement review related to the development of safety apps between 2014 and 2018 and the agency's "Zero Harm Team". Several of these reports have also been released, but haven't been as explicit in their conclusions.
The review also included the development of a construction accreditation standard that became compulsory for any civil contractor who wanted to tender for NZTA work.
Sources inside NZTA have told Newsroom the report has been circulating around the agency since the end of last year and was ready to be published around three weeks ago.
Releasing it then would have seen the agency - and some politicians - come under increased scrutiny, thanks to the uncomfortable questions it raises about the oversight of NZTA.
App projected procured "retrospectively"
Two companies were incorporated by either McMullan or his partner Riding and acquired NZTA contracts for apps soon after they were formed.
Five months after McMullan and Riding created "Lean Machine Ltd" the company received contracts valued at $51,950 from NZTA. McMullan vacated his shareholding in the company two days before the contract was signed.
Another company "Learning Machine" was even more effective at getting access to NZTA money. Nine days after the contract was signed, the company received $78,000 from the agency. This one was setup by Riding, who signed a contract with NZTA two weeks after it was incorporated. McMullan countersigned the contract.
These weren't the only companies formed to get NZTA contracts. The report notes four companies were established by Riding and "immediately" received funding from either NZTA or the civil construction industry.
The other two companies were: SafetyApp and ConstructSafe Testing.
SafetyApp would end up being contracted to deliver a second version of an app called "Zero Harm", but it would start receiving money for it before the tendering process for the app's development had finished.
"The procurement plan was retrospectively created in December 2016 to support the awarding of the contract to SafetyApp Limited," the report's authors wrote.
Even the retrospective tender process had issues. It was left open for four business days - from January 25 to January 29, 2016 - in violation of the government-mandated 25 business days for procurement.
"The SafetyApp contract was for $100,000.00 (excluding GST), meeting the threshold requiring the application of the Government Rules of Sourcing ... NZTA did not encourage an open competitive procuring process, or openly advertise the Zero Harm Version 2 contract, prior to SafetyApp invoicing for this work."
An additional $98,000 would be billed for the app by the end of it all, despite no agreement that this extra sum be paid.
The Zero Harm app itself would prove to be a flop and it was dropped in 2018 after a series of complaints from staff that it was buggy, hard to use and did not work well.
It also suffered a major privacy breach where the personal information of 110 users were leaked to everybody who used the app.
"The breach reportedly occurred due to Person A [Riding] performing testing in a live environment. This resulted in the privacy team and Chief Legal Counsel becoming involved."
And although NZTA funded the app's development it also allowed Riding to write in intellectual property provisions that gave him ownership of many of the things he developed while under contract with NZTA.
NZTA had originally written in to the agreement that the app developer would grant the agency all intellectual property rights in "deliverables" that weren't owned by the supplier (the person developing the app). This was replaced with: "The supplier retains all intellectual property rights to copy, modify, distribute, and further commercialise the deliverables as part of its normal business activity".
Industry questions NZTA's increased health and safety activity
The highest-earning initiative would prove to be ConstructSafe - a form of construction accreditation.
It was bolstered by an NZTA announcement that all contractors on state highway projects would be required to sit a ConstructSafe assessment by July 2017.
Riding's company ConstructSafe Testing Ltd was contracted by NZTA to deliver "tier 1" testing under the new system. It would earn $1.5m from it. The company was also funded by NZTA to develop the "ConstructSafe Competency Assessment Scheme" even though SiteSafe and Impac had already developed similar schemes.
The whole initiative was delivered in conjunction with the Construction Health and Safety New Zealand (CHASNZ) who earned $3m from the scheme themselves and even sought advice on what to do with a $800,000 surplus they gained from fees charged.
That report noted "Person A [Riding], the sole director and shareholder of ConstructSafe Testing Ltd, financially benefited from NZTA's requirement for all workers on state highway projects/work sites to complete a compulsory competency assessment"
"During our review, we heard from civil construction industry stakeholders that the industry was unclear on what was driving NZTA's increased level of activity in the sector's health and safety activities.
"The industry was apparently sceptical of the ZHM's [McMullan's] involvement in the area outside of his role with NZTA and perceived he had conflicts of interest."
The report concluded McMullan hadn't declared a conflict of interest in relation to Riding's companies, but had approved payments to those entities.
A spokesman for NZTA told Newsroom: "It is [NZTA] Waka Kotahi’s intention to publish this independent report, as we have done with other related reports. We are currently in the process of engaging with stakeholders in relation to the release of the report, and intend to publish the report when this engagement has been completed."
The agency denied that it withheld the report and revealed accusations against a former manager were referred to the Serious Fraud Office (SFO) last year. The SFO has confirmed to Newsroom it received the matter from the transport agency and an inquiry is ongoing.
"The SFO does not disclose the detail of ongoing investigations to protect the integrity of the investigation and those involved. The SFO has no further comment to make."
The NZTA spokesman acknowledged the agency received advice from the SFO in June that the report no longer needed to be withheld under section 6(c) of the Official Information Act (which advises a report be withheld if it might prejudice the right to a fair trial).
He said the agency had previously been prevented from publication because of advice last year that releasing it could prejudice certain legal rights.
The report was received in September 2019 and its findings forwarded to the SFO the following month.
"It is Waka Kotahi’s [NZTA's] intention to publish this report, as we have done with other related reports.
"Waka Kotahi was advised by the SFO in June 2020 that Section 6 (c ) of the Official Information Act is no longer applicable, and the Zero Harm report can be published.
"Waka Kotahi categorically rejects the suggestion that the report has been ‘held back until after Parliament rose’." It did not explain the time elapsed between that June SFO advice and the report still not having been publicly issued.
The spokesman said the agency had taken "extensive" actions in response.
"The report details a wide range of serious issues relating to work which was overseen by the Transport Agency’s former Zero Harm Manager [McMullan] between 2014 and 2018.
"These issues included undeclared and unmanaged conflicts of interest on the part of the former Zero Harm Manager, the development and funding of products which were not fit for purpose, failure to follow established procurement processes and an extensive disregard for proper financial management practices.
"Similar issues were identified in a separate Deloitte report released in May 2019 examining the work undertaken by the former Connected Journeys Solutions group, which was led by the same manager."
NZTA said it would need to consult stakeholders before the latest report - distributed to the agency's officials at the end of last year - can be released.
"The historic issues related to the activities of the former Zero Harm manager identified by the review are extremely serious, the practices identified in the review are entirely unacceptable, and significant changes have been made in response to the report’s recommendations.
"While it is deeply disappointing and completely unacceptable that any of this occurred, in the three years since the former Zero Harm team was disestablished, [NZTA] Waka Kotahi has made significant structural changes, and introduced strong, fit-for-purpose auditing and financial management practices to ensure that these issues are fully addressed and that these practices can never be repeated."
Those actions included: strengthening policies around the management of conflicts of interest, conducting spot checks against the companies register, strengthening internal procurement guidance, and clarifying roles and delegations when "external bodies" are involved in decision making.
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