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Contracting out resource consent processing

Abstract

This guidance note provides councils with tools to decide what to achieve through outsourcing, to make informed decisions, and to set up and manage external processing to minimise cost and risk.

Problem issues are identified, and information on approaches commonly taken by other councils, including best practice examples, are provided to assist in resolving these issues.

Primarily, the note deals with how to organise “overflow” assistance. It also applies to situations where specialist technical input into resource consents is required and where options for outsourcing the entire resource consent processing function are being considered.

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Guidance note

Deciding to contract out

Determine what the council wants to achieve by outsourcing

Before starting, clearly identify:

Knowing the 'why' and 'what' will provide a clear basis for selecting a contractor.

Take a long-term strategic view of what is wanted from outsourcing by completing a strategic assessment. Establish whether resource consent processing, or parts of this service, are considered to be a 'core' council function. The closer the process is to being a core council activity, the more scrutiny should be applied to ensure it is appropriate to outsource the service. Even if an emergency has arisen, and the decision must be made quickly, set aside time down the track to reflect on the decision. If the council has been outsourcing for some time without a proper decision-making process, take time to reflect on the experience.

Consider these issues in a strategic assessment:

Recommended reading at this early stage is Outsourcing and Alternative Service Delivery Methods, an MBA paper prepared for Waitaki District Council. This short paper explains the importance of a strategic assessment, and explains some of the pros and cons of outsourcing local authority functions.

While there is a range of approaches to outsourcing, a common approach taken is to contract out lower level applications. These are typically non-notified controlled and discretionary activity applications, with few complex issues.

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Outsourcing the whole consent processing function

Some councils have contracted out the full resource consent processing function, usually in conjunction with a wider range of regulatory functions, such as building control, dog control, planning enforcement and noise control. This has been achieved through either a transfer of functions to another local authority or by delegation to a contractor.

A robust decision-making approach is required if you are considering outsourcing the entire processing function. Consider:

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Timeframe and cost issues

Many outsourcing decisions are made with a view to achieving better service through shortened timeframes and reduced costs. However, these improvements can only be achieved if the council actively manages a number of issues including:

It is important to have realistic expectations as to the relationship between quality, timeframes and cost. Is it realistic to expect an outsourced service to be faster, cheaper, and of higher quality?

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Options for outsourced assistance

Consider the following options:

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Preparing a contract

This section is for guidance only and should not be relied upon in the absence of legal advice. The input of a contract lawyer is recommended when a contract is being drafted.

The contract is the written component of the agreement between the council and the contractor. The form of the contract can vary widely just as the scope of services can vary depending on the specific needs of each council.

The information below is intended to be an overview of the matters which can be considered for inclusion in a contract. Much of the information is oriented toward more significant consent processing contracts, so users will be able to 'pick and choose' those aspects that seem most applicable to their circumstances.

Scope of services: The description of what the contractor is to do

The scope of services is the core of any outsourcing contract and needs to be detailed and unambiguous. It should cover:

* For example, the general requirements for 'overflow' consent processing could include the following:

General terms

The general terms of the contract support the scope of services and cover many of the procedural issues. The council may have a standard set of professional services contract terms that can easily be modified to suit.

Matters to cover in this part of the contract, and some possible approaches, include:

  • Consider a fixed term contract with an option for renewal or extension, as this provides more impetus for reviews.
  • Include a clause for termination following a notice period, but without requiring a reason. This is commonly used to facilitate changes to the contract due to a number of minor issues of non-performance.
  • Include an immediate termination clause for substantive issues of non-performance or conflict. Examples include breaches of contract terms, inability to meet timeframes, bankruptcy, drug dependency, failure to report without reasonable excuse, sale or significant changes to the contractor organisation, or unavailability of listed contractor personnel.
  • An alternative to the above, which many Councils use, is a 'standing arrangement' whereby applications are forwarded to consultants as and when necessary, and so long as contractor performance is satisfactory. There is no fixed duration to the contract. If performance is not satisfactory for any reason, the consultant may find that they receive fewer or no applications to process. In such a case, it is good practice for a Council to advise the consultant what aspect of their performance was unsatisfactory, rather than leave them wondering why the flow of applications has dried up!!
  • Define the requirement for the return of all hard and electronic copies of council records on termination of the contract.
  • State that the contractor's liability for acts or omissions remains for a specified period after the end of the contract.

Communication is a key issue. Agreed procedures will avoid misunderstandings and make the process of dealing with a contractor seamless for applicants.

  • State the conditions for use of council's or the contractor's letterhead and other 'branded' communications, and what types of communications need to come from whom.
  • State the requirements for the contractor entering information into the council's reporting, time recording, and timeframe systems.
  • State expectations of contractor's interface with applicant (e.g. file note conversations/contact prior to site visits/requests for additional information).
  • State the IT systems being operated by council to ensure compatibility.

Public consultation and media liaison is crucial to some applications, particularly when they are large and complex. Members of the public may require aspects of the application to be explained to them, and require advice on the submission, hearing and appeal process. There may also be significant media interest so clearly defined protocols for dealing with public inquiries should be provided.

  • Define whether the contractor should be available to answer questions from applicants, the media, or the public at large. Generally all media enquiries made to a contractor should be forwarded to council.
  • Provide a copy of the council's media policy to the contractor and ensure it is understood.
  • Require the contractor to make the application file available for public inspection.

Specify the council's resources to be provided and, where relevant, include a requirement these are to be returned either at the end of specific consent processing or at the end of the contract period.

These items could include:

  • The use of council systems and resources including whether office accommodation, telephone, electricity, secretarial and other services and equipment are to be provided on a regular or ad hoc basis
  • Original or duplicate copies of relevant property and application files
  • The necessary templates and electronic formats for reports, and any protocols for deviating from them
  • Access to council staff and legal or specialist advice.

Councils have obligations to record all information and keep it secure. Having an external contractor complicates this process. In addition, contractors can become privy to internal policy decision-making, including internal guidelines on notification, and sensitive commercial information associated with applications.

Consider the following options to ensure confidentiality requirements are met:

  • Require the contractor to work from council's offices
  • Specify in the contract that the contractor must keep accurate and separate records, and that they are secure at all times
  • Include an explicit confidentiality clause into the contract
  • Specify in the contract that a breach of confidentiality will result in the immediate termination of the contract.

Ensure contractors are obligated to self-police these areas, and that conflicts of interest must be promptly identified and discussed with the contract manager. Conflicts of interest can arise either with particular applicants or with particular issues. The fundamental position must be that potential conflicts of interest must be disclosed. Where ongoing contractual arrangements are in place it is advisable for the contractor to identify up front areas where conflicts may arise. This can avoid unnecessary delays when allocating resource consent applications.

Require that the contractor complies with the NZPI code of ethics (PDF 289KB), or other relevant professional institutes’ code of ethics.

Consider specifically naming personnel in the contract.

You may prefer to deal with specific individuals rather than any member of a consultancy team. If this is the case, ensure that each individual's role is recorded in the contract and make provision for procedures to be followed should that person not be available at any particular time. Also ensure that the assignment or subcontracting of any of the contractor's obligations to a third party is prohibited.

Individuals can be identified by various methods, including:

  • Attaching a schedule listing individuals' and hourly rates
  • Simply requesting that a particular person process a consent when allocating it to the consultant company, and seeking confirmation or otherwise of their availability.
  • Including individuals in the contract body with hourly rates but further specifying that 'easy' work is to be completed at a minimum hourly rate, or by specific staff within the consultancy. If this approach is taken there should also be a clear process for contractors to get new staff registered on the contract.
  • Specifying a manager for the contract who is responsible for workload coordination, meetings attendance, outstanding accounts, operational issues and general monitoring of progress and communication

If the use of specific personnel is crucial to the council a clause requiring the notification of the absence of any nominated personnel should be included, as well as a requirement for requesting changes to the nominated personnel to be in writing. It is also helpful for councils to specify their liaison personnel.

Clearly define service standards.

To ensure the success of contracting out services the council must make the expected performance standards clear. Any benefits from outsourcing can be lost through the mismanagement of the contractor's performance. Clear guidelines in the contract will make this process easier and more transparent.

Typically, contracts focus on the following two issues when defining performance standards:

  • The timeframes for completing stages of the process, usually outlined in a schedule to the contract
  • The quality of reports and correspondence. Some councils have attempted to quantify an acceptable standard, for example, no spelling or grammatical errors for correspondence and not more than 85% content change for reports. Another way is to specify aspects of the process that must be correct, for example, the identification of all aspects of non-compliance and addressing all matters of relevance under the Act. A third method is a broad statement that the report content and quality must be such that it would sustain the scrutiny of the Environment Court.

Any deviation from the expected performance standards should also have clear consequences. The council will need to decide what constitutes a breach of the contract terms and therefore immediate termination of the contract and what can be dealt with in a proactive management process to ensure improvement. It is standard for councils to specify that all defects and mistakes are to be remedied by the contractor at their cost.

The flip-side of this is that the council must also ensure that it provides deliverables on time and with the accuracy required from the contractor. Services such as provision of the necessary documentation, timeliness of responses to requests for information, advice on changes in policy and feedback on performance, if performed well, will ensure the smooth operation of the relationship.

Be specific about the peer review and audit process.

Generally, under most contracts there are two parts to the peer review process. A first review takes place within the contractor's organisation to ensure quality standards are maintained. A second review is conducted in-house by the council, which may or may not include making the decision on non-notified applications.

For both processes the contract should specify:

  • The individuals responsible
  • The stage(s) of the process when the review(s) need to occur
  • The time allowed for the review
  • The method of signing off the document in questi

When choosing council peer reviewers select staff who are senior, objective, and have experience in peer reviewing work.

It is more efficient to select peer reviewers who will pay attention to substance rather than style. If deficiencies become an issue, an audit of a contractor's work may also be warranted. Wellington City Council has developed strong peer-reviewer selection guidelines, high peer-review standards, and a comprehensive feedback system for each consent processed.

Define the extent of delegations with specialist legal input.

This includes both 'officer' type delegations under the RMA, as well as any delegated authority to sign letters on behalf of the council. This area has been legally ambiguous and has been the subject of a recent legislative review which should now provide clearer guidance. Check the legal sections below and obtain advice on the legality of any delegations.

This can be a difficult area for both councils and contractors to negotiate as it usually attempts to shift risk from councils to contractors.

Separately consider the issues of liability and insurance. Many councils state in contracts that a contractor must have a certain amount of insurance*, without actually stating what the contractor is liable for. Insurance covers a risk, for which the contractor is liable. Without specifically addressing liability in the contract, this issue remains arguable. Simply saying that a contractor must have a certain level of professional indemnity insurance may imply liability to a certain level, but does not explicitly say so. Further, consider how realistic it is to transfer risk to the contractor - it is likely that council's managers and insurers will retain control of any liability situation. If the contractor's work is closely peer reviewed, and council officers make the actual decisions, then there may need to be some sharing of liability.

Common approaches include:

  • Requiring the contractor to rectify minor defects at no cost to the council or applicant
  • Close peer reviewing and decision-making by the Council, with the contractor having only limited liability
  • The contractor having an unlimited liability and it being up to the contractor how much insurance they have
  • The contractor having limited liability, with a specific level of insurance being required usually $1M

Include a requirement for the contractor to have general public liability insurance**.

Require both types of insurance to be held for a specified period after the end of the contract.

Provide copies of the council's written health and safety policy, brief the contractor on specific OSH requirements, and request evidence of the contractor's health and safety policy and record.

* Professional indemnity insurance - this type of insurance protects professionals against liability claims resulting from negligent work.

** Public liability insurance - a general term applied to forms of third party liability insurance with respect to both bodily injury and property damage liability. It protects the insured against claims brought by members of the public.

There are two critical elements in avoiding difficulties arising over fee expectations:

  • the method of calculating the amount of payment
  • the timing of invoice and payment.

In terms of calculating the amount for payment, the majority of councils choose to pay on an hourly rate. This ties in with the specification of personnel and their individual hourly charge out rates. For overflow consent processing, a few councils (including Wellington City) choose to set a maximum expected fee for particular types of consents with a process to follow if it is exceeded. This is usually based on complexity but generally excludes high complexity applications which require a higher degree of management, as each application must be assessed and graded as the first step. Having different payment rates for different types of consents adds a layer of administrative complexity, but may help to ensure that the contractor is applying the right level of professional expertise to each consent. Another way of dealing with this is to specify that low complexity consents cannot be charged out at a rate higher than that specified for the junior planner.

  • State whether the contractor is to invoice on an aggregate basis - which may be suitable for secondment-type services - or to provide invoices for individual applications. Specify the level of detail required on invoices, including:
    • Individuals who have completed the work, hours and rates
    • An itemised breakdown of tasks undertaken by individuals (and the time involved)
    • Details of any disbursements
    • Order numbers and application numbers
    • Reference to the amount of any fee estimate.
  • Include common invoice dispute resolution processes, which should be available from other council contracts. Ensure the cost of these processes is consistent with the fee value of the work - don't commit to an unnecessarily onerous process for a few hundred dollars.
  • Define whether the contractor will respond to invoice queries from applicants and formal s357 (A) - (D) objections. If so, state whether the time taken will be paid by council.
  • Include dates by which invoices must be received and the date that they will be paid. For example, an invoice may need to be received by the 5th of the month in order to be processed in council's systems for payment on the 20th of the month. However, if the council is going to be issuing an invoice to the applicant for further payment, the contractor's invoice may be needed very quickly, for example 48 hours after a hearing or, in the case of a non-notified application, upon completion of processing.

Section 36(3A) of the Resource Management Act states that a Council must provide an estimate of charges (e.g. for consent processing) if requested to do so. This means that contractors should be advised that they must be prepared to provide such estimates for the consents they are processing if so requested. This is discussed again later in the section on 'RMA provisions'.

Specifically state the timeframes that must be met.

Clearly these timeframes need to be tied to the scope of services. Allow time at the beginning and end for administrative processing within council, and again at the end for peer review and decision-making. Guidelines may be:

  • 1 working day for collection of the application from council and identifying any potential conflict of interest
  • 3 working days for information assessment
  • 3 working days for an affected party/ notification determination
  • 10 working days for reporting.

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Protocols and guidance

As an alternative to covering all matters in the formal contract, several councils, including Christchurch City, Environment Canterbury, Wellington City and Auckland City, have developed less formal protocols and guidance documents that are appended to the contracts. Matters covered include:

These documents can be invaluable for recording the less tangible matters that are important for the smooth operation of the council's systems and for reducing risk. It is also easier to alter a non-contractual document to adapt to new and improved procedures. They are usually very council specific as they are strongly based on a particular council's procedures. Councils may be prepared to share these documents with other practitioners in the interests of best practice.

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Selecting a contractor

Councils use many methods of seeking an outsourcing contractor. These include:

Prior to awarding new contracts or renewing existing contracts, it may be appropriate to 'trial' several current and potential contractors over a month or two to ensure that contractors are able to deliver the required outputs in terms of cost, quality, and timeliness, and to confirm that council is receiving the best service.

If a more informal approach is being considered, such as a direct approach, ensure that the council’s documentation of the expected deliverables is adequate to clearly inform both the council and the potential contractor. There is a clear advantage in developing the contract, including the scope of services first, and using it as the basis of obtaining the proposal(s) from the contractor(s). By developing the contract first, and providing it to prospective contractors, both the council and the contractors are aware of the terms, and by responding are committing to complying with them.

The selection criteria will depend to a large extent on the type of services required. When selecting a contractor to provide specialist skills, technical skill will be very important. Some general selection criteria may be:

Councils often engage more than one contractor, for both technical input, and overflow work. This can have the advantage of spreading the workload across several contractors, providing contingencies if there is a conflict of interest or if a contractor is unavailable. This is particularly the case for larger councils where there is a significant outsourcing workload. For example, Wellington City typically has between three and five primary contractors, selected on the basis of performance and experience.

For smaller councils, there may be a strong desire to form a close relationship with one or two primary contractors in order to minimise risk and maximise integration into the council team. Potential advantages with an exclusive contract include reduced management input and possibly the opportunity to negotiate a better rate. Ensure there is scope for review of exclusivity in the event of poor performance. Also consider what conflicts of interest are being created, and whether the council risks becoming a dominant purchaser in the local consultant market. This may lead to fewer choices and greater cost for other sectors of the community.

Feedback from councils has shown some dissatisfaction with the level of experience and skill shown by some consultants. This can be as a result of not understanding or communicating each other’s needs, and a lack of specificity in contracts. In addition, it is important for councils to understand that consultancies need to make a profit, and that in most instances senior planners will need to charge more than junior planners. Over-emphasising potential cost reductions will almost inevitably lead to junior consultants undertaking the bulk of the work, possibly with inadequate senior supervision.

Being realistic about fee expectations assists in managing both the council's and the consultant's expectations. Take these matters into account particularly when the council both issues the request for service and selects the service provider.

To resolve potential fee expectation issues, consider drafting a contract that:

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Managing the relationship

Large councils tend to have a greater number of contractors, a greater volume of work, and potentially greater risks. Accordingly, more formalised contract management may be needed. Major urban councils will often share knowledge and procedures if requested.

Do not underestimate the time and resources required to effectively manage a contract. Feedback from councils shows this is routinely underestimated. Incorporating the contractors into council processes and maintaining regular workloads can reduce this issue.

The contractual relationship will be enhanced if contractors are provided with regular opportunities for up-skilling, regular performance reviews and peer review. It is also important to include contractors in email circulations (e.g. team meeting minutes or internal best practice guidelines) to keep them up to date with the changing internal environment.

The nature of these tasks requires that they are undertaken by someone with appropriate experience, skills and authority within the council.

Consider an appropriate mix of people skills for the contract manager. Communication skills, objectivity and fairness are important. Previous consulting experience may be beneficial.

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Building partnerships

Developing a partnership type of relationship is beneficial to both the contractor and council. Building a partnership confirms that trust and goodwill is of primary importance to both parties. Councils need to consider the time contractors invest in the set-up phase of a long term contract and it is therefore important for councils to honour the commitment to maintain a level of work that is forwarded to the contractor.

Routinely, matters outside the scope of services in the contract arise, or the contractor is required to use their judgement in the absence of specific instructions. At these times, a partnership ideology is invaluable.

Deal with potential conflicts early, openly and in good faith. Contractors do not like losing clients, especially when they are not sure why, and council’s may risk losing a great deal of knowledge and skill.

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Performance reviews

Getting the best from a contractor requires feedback on performance, both informal and formal. Informal reviews and feedback can effectively be undertaken as a part of the peer review process.

Use review and feedback to see whether the council's systems can be improved or if the terms of the contract may need to be reviewed. Remember that steady incremental improvement is usually far more effective than attempting larger infrequent changes.

Ongoing (weekly/monthly) discussions between the contact persons in both organisations can assist with small changes and updates on current practice procedures.

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Contract reviews

Ensure the contract is reviewed regularly, in terms of both the services being provided and changed legal or processing requirements. See the RMA Provisions section below for a discussion of the changes to the delegations and charging functions.

Review contracts if any of the following occur:

Experience has shown that outsourcing for one purpose can grow into different levels of service without positive decisions being made, or reviews taking place. An example may be a short-term 'secondment' - initiated while a council staff member is on leave - that continues after the staff member returns, possibly along different lines.

When these situations occur, it is important to take a step back, and complete a review. Ask:

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Checklist

Use this checklist to ensure that all the contractual issues have been covered. Before selecting a contractor:

Selecting a contractor:

After selection:

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Best practice examples

An excellent way for councils to gain knowledge is to discuss potential options with other experienced council officers. The following people are suggested, as at March 2006:

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RMA provisions

The relevant provisions of the Resource Management Act 1991, covering delegations and transfer of powers, include:

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Case law

The leading case on outsourcing under the RMA is Just One Life Ltd v Queenstown Lakes DC Court of Appeal CA72/03 May 2004. However, this decision considered s34 before it was amended by the Resource Management Amendment Act 2003. Given the changes made to the delegation provisions, this case has limited precedent value for interpreting s34A but the Court did make an obiter comment that a delegation to a company would not be permitted under s34A (given that a company cannot be an employee or a hearings commissioner). There is no other caselaw as yet in respect of outsourcing under s34A.

Cases on general contract law will be relevant to contracts between a council and a contractor.

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Related guidance notes

Setting charges for processing and monitoring consents under the RMA

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Relevant publications

SNZ HB 9213:2003 Guide to Local Government Service Delivery Options
Published by Standards New Zealand - June 2003
The Standard has been developed to assist local authorities in developing 'good practice' in the process of selecting, reviewing and implementing appropriate methods and levels of service delivery in order to meet changing community needs and expectations. It encourages local authorities to consider all practical options, without recommending specific service delivery options as being more appropriate than others. It provides information about: Objectives, drivers and knowledge required to undertake an objective review of service delivery options; The core competencies and capacity required internally when embarking on the decision making process; Risk management considerations; The core competencies and capacity required both internally and externally for various service delivery options; Relationship management considerations; Implementation issues; Monitoring considerations.

Contracting Out Local Authority Regulatory Functions
Published by Office of the Controller and Auditor General - November 1999
In 1999, the Controller and Auditor General reported on contracting out local authority regulatory functions. The review was prompted by the Queenstown Lakes District Council (QLDC) decision to contract out a number of its regulatory functions and contains detailed steps to be followed as a good practice guide. In summary, it was identified that a council should take into account the following key considerations in deciding whether to contract out any regulatory functions: the legislative authority behind the exercise of the council's functionsthe council's liability with regard to the performance of any function or duty the council's duty to maintain individuals' rights of redress; and the requirement for the council to undertake a comprehensive strategic planning, business planning and risk analysis. While the report acknowledges the pioneering aspect of the QLDC's decision, it identifies many deficiencies in their processes including the lack of such crucial elements as consultation, business planning, corporate planning and a value for money analysis. However, the QLDC's contract terms and conditions were identified as meeting good practice expectations. The report makes a number of recommendations as a result of its investigation into the QLDC experience and the formulation of its good practice guidelines. The report emphasises the need for councils to undertake thorough investigations and analysis before the decision to contract out is made. In addition, the report recommended that the law be reviewed to clarify a number of inconsistent messages in the Local Government Act 1974.

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Current challenges in practice

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Acknowledgements and editorial comments

Guidance note prepared by Matthew McCallum-Clark and Louise Miles of Incite, building on work undertaken by Irene Clarke of Wellington City Council while on secondment to the Ministry for the Environment. Peer review was undertaken by Nicholas Pryce, Clare Covington and Andrew Collins of Harrison Grierson Consultants Limited, Richard Munneke of Wanganui District Council, and Graeme Ridley of Auckland Regional Council.