Waka Kotahi applies a risk-based approach to ensure risks are considered and managed through the planning to delivery process, including financing.
Assessing and managing risk
Waka Kotahi and all organisations allocated funding from the NLTF are expected to take a risk-based approach in assessing and managing risk associated with investments. This risk-based approach applies to all transport activities funded from the NLTF, and includes the risks arising from:
- growth and changes in land use
- changes in critical business case assumptions
- procurement of services and infrastructure
- financing investments
- organisations delivering activities
- ownership of the service or asset resulting from investment
- exercising of delegated authority
- the readiness of activities to be delivered after commitment of funding
- payment of claims for delivery of activities
Waka Kotahi policy
Business Case Approach (BCA) principles must be applied to investment proposals. The BCA incorporates a risk based approach with the requirement that the strategic case be reviewed at each stage to ensure that the problem still warrants addressing despite changes in growth, land use and other assumptions. The BCA also requires demonstration of robust financial, commercial and management cases, including financial risk management.
The processes and procedures set out in this knowledge base and in other documents, eg the benefits management approach (from August 2020) and Economic Evaluation Manual (superseded August 2020), support a risk based approach, including a requirement to test the impact of assumption changes to the viability of investment proposals. Organisations requesting or receiving funds from the NLTF must follow Waka Kotahi policy, processes and procedures, including the use of the Waka Kotahi Procurement manual.
Waka Kotahi aims to adopt a flexible approach to the financing of investment proposals. Where sensible in terms of the scale and risk of the investment proposal, and having complied with all legislative requirements, this includes the use of debt and advanced procurement arrangements such as public private partnerships (PPPs). Waka Kotahi will consider the arrangements for financing its share of the cost of capital projects on a case by case basis. Waka Kotahi may opt to fully or partially fund its share of the:
- direct operational and capital costs of activities on a pay-go basis (the majority of activities will be funded in this manner)
- financial servicing costs of loans raised by itself or its investment partners to fund capital projects (subject to meeting legislative requirements)
- cost of the activity through other arrangements, including tolling and partnerships.
As a rule, Waka Kotahi will not fund depreciation, interest costs or any other financial servicing costs of capital projects, directly or indirectly, unless by specific agreement. In any event, we will not meet such costs when we fund the direct capital cost of the project from the NLTF on a pay-go basis.
Waka Kotahi will only provide funding assistance for the cost of insuring or hedging against inflation, damage or disruption to transport activities, operations or facilities when it considers that it is most likely that the long-term costs to the NLTF will be reduced. Waka Kotahi will not also directly fund remedies or costs arising from events covered by hedging or insurance.
Where debt funding is employed, whether through a loan arrangement or a PPP procurement arrangement, Waka Kotahi expects that the debt will be managed within an identified, approved risk framework specific to the activity being procured. Management will include continuous monitoring and regular reporting of the identified risks, including interest rate risk, to the Waka Kotahi Board.
Property and infrastructure for which funding has been provided from the NLTF will be in public ownership and available to land transport network users who have paid for its access and use through their contributions to NLTF revenue.
Waka Kotahi will consider funding of infrastructure not in public ownership for transport purposes but will do so only on condition that the use of the facility for transport purposes will endure and that the Waka Kotahi right to compensation, should the purpose or ownership of the facility change, is protected.
Waka Kotahi must receive compensation for property and infrastructure it has funded from the NLTF if the purpose or ownership changes. The compensation that the Agency receives will be in the same proportion of the current value of the property and infrastructure as its contribution was to the total funding of the property and infrastructure when procured.
Waka Kotahi may waive its right to compensation in the event that ownership changes but the purpose and use of the property and infrastructure remains intact. Waka Kotahi expects that the provision of service through use of the facility would continue to be delivered at a similar cost to that prior to the change in ownership.
Waka Kotahi will tailor its level of engagement and monitoring of approved organisations and the Waka Kotahi (state highways) based on its assessment of its investment risk.
In practice, Waka Kotahi will not involve itself at an individual activity level where activities are low risk and low cost and where Waka Kotahi has assessed that approved organisations and Waka Kotahi (state highways) have the capability to deliver their programmes effectively. In such cases, Waka Kotahi will delegate the management of programmes of low risk and cost activities with as few compliance requirements as possible.
Apportioning of risk
The Waka Kotahi Procurement manual requires that all risks should be appropriately apportioned to the party (contractors, approved organisations and Waka Kotahi) best able to manage it.
Unless otherwise agreed at the time of funding approval, the Waka Kotahi acceptance of project risks will be in the same proportion as the Waka Kotahi contribution to total funding of the project from all funding sources.
Waka Kotahi has delegated authority to its partners to make investment decisions for specified programmes within set funding allocations. These delegations will continue and may increase, where our investment partners demonstrate the capability to manage delegations prudently.
The Waka Kotahi expectations of those exercising delegations is set out in this Knowledge Base.
Waka Kotahi requires its investment partners to take full accountability for all decisions and actions made under delegation. Investment partners should apply The Waka Kotahi Investment Assessment Framework to achieve desired outcomes and the best value for money. Waka Kotahi reviews a sample of investment decisions made under delegation and expects that its investment partners will also monitor and report their performance under delegation.
As a rule, activities are only approved for funding when they are ready to start. Waka Kotahi considers the type of activity (or combination of activities) when ascertaining readiness for funding approval. For instance, it will consider that:
- the construction/implementation phase of an improvement project is ready when all previous phases have been completed, all planning approvals are in place and there is a commitment from the activity owner to start the phase within three months of funding approval
- a programme of routine, low risk activities is ready when the Agency considers that it is backed by robust activity management planning and that the National Land Transport Programme negotiations between the programme owner and Waka Kotahi are concluded.
No retrospective funding
Waka Kotahi does not provide funding assistance retrospectively, unless by prior agreement. Any organisation that commits or commences a new activity prior to Waka Kotahi funding approval or specific agreement, or commits expenditure on an activity in excess of the funding approval, does so at its own risk. Exceptions to this are:
- activities within a delegated allocation where Waka Kotahi approval permits adjustment of funding to activities within the total allocation and where over-expenditure on some activities can be offset by under-expenditure on other activities
- fees for the investigation and design phases of small improvement projects, which may be claimed if/when the construction/ implementation phase of the project is approved.
Payment on delivery
Payment will only be made when the completed portions of approved activities have been delivered as specified in the funding approval. Exceptions to this policy must be individually agreed between Waka Kotahi and the investment partner.
Waka Kotahi expects to pay claims on an accrual basis, ie submitted on evidence of work completed without requiring a supplier invoice.
Waka Kotahi may reduce, refuse or withhold payment for any approved activity if it considers that (in relation to an approved activity) an approved organisation or person:
- is in breach of a procurement procedure
- has been or is or will be likely to be in breach of any other provision of the LTMA relating to payments from a land transport disbursement account
- has already constructed or undertaken the activity
- is proposing to construct or undertake the activity to standards that are excessively high or unsatisfactory.
If Waka Kotahi makes any payment for an approved activity that is based on information that is subsequently found to be erroneous or inaccurate, the payment is recoverable in any court of competent jurisdiction as a debt due to Waka Kotahi.