Affordable and achieves value for money

Introduction

The NZ Transport Agency (the Agency) will invest all funds over which it has discretion to land transport activities that it considers will provide best value for money Selecting the right things to do, implementing them in the right way, at the right time and for the right price. . Our focus is the delivery of the right outcomes, at the right time, at the right cost and financed at the right level of risk.

The Agency will, where applicable and approved, utilise financing instruments to leverage the available funds from the National Land Transport Fund.

The information below has been organised under headings of:

• Value for money
• Financing of investments
• Risk and opportunity management

Investment thresholds and caps

The Agency has established and will review thresholds for investment proposals, based on its priority order of assessment profiles. Applications for activities to be included in the National Land Transport Programme Interrelated and complementary combination of activities that, when delivered in a coordinated manner, produce synergies – can span more than one work category and more than one activity class, e.g. a programme could include a road improvement and public transport improvement activities.  or to receive funding assistance that fall below those thresholds will be approved only in exceptional circumstances.

The Agency may also cap the level of funding it is prepared to invest in a programme or project, either based on the level of land transport benefits delivered from the activity, which may be less than the cost of the activity, or as a means of limiting the risk to the National Land Transport Fund by approving funding for an activity with highly uncertain costs.

The Business Case Approach 

A cornerstone of achieving value for money Selecting the right things to do, implementing them in the right way, at the right time and for the right price. is the Agency's adoption of the Business Case Approach, and our expectation is that all land transport investment proposals will be developed under this approach over time. If activities have been developed under the policy prior to the Agency's adoption of the Business Case Approach, they may be progressed using the old policy. However, we expect that the principles and concepts of the Business Case Approach will be applied to these activities.

New transport planning activities, other than regional land transport planning management, transport model development and activity management planning, that require funding from the National Land Transport Fund (NLTF The fund established under section 10 of the LTMA ) from the 2015-18 NLTP A National Land Transport Programme Interrelated and complementary combination of activities that, when delivered in a coordinated manner, produce synergies – can span more than one work category and more than one activity class, e.g. a programme could include a road improvement and public transport improvement activities. adopted by the NZTA under section 19 of the LTMA, as from time to time amended or varied onwards must use the Business Case Approach.

Smart investor approach

It is a basic requirement of all organisations, including the Agency, that receive, or intend to receive, funding from the NLTF The fund established under section 10 of the LTMA  to act as smart investors, meaning that they will:

• apply the planning and investment principles set out in this Knowledge Base to their investment proposals and decisions
• demonstrate sound planning, evaluation and decision making processes and judgement
• ensure that proposals are affordable Demonstrates that adequate funding to deliver the activity, or combination of activities, is available from identified sources, e.g. a funding plan has been identified. , that finance from appropriate sources is available and financing arrangements are managed within identified, approved risk frameworks
• demonstrate smart buyer competence in procuring services and infrastructure
• be able to competently manage their suppliers and consultants and hold them accountable for delivery as specified

Use of intervention hierarchy

The Agency expects that an intervention hierarchy approach will be applied to all investment proposals, at both programme and project levels (refer to the guidance on Optimise the provision and use of the land transport network). 

An intervention hierarchy is applicable to all steps in the planning and investment process. In practice, this means that alternative and option selection should start with lowest cost alternatives A strategic option that may encompass a mix of modes and/or high level routes and/or land use options. Alternatives would be considered during strategy development, with the preferred alternative being selected and taken through into package and project development. and options, including making best use of existing transport capacity, before considering higher cost alternatives and options.

Intellectual property

The Agency expects that it will share ownership of intellectual property rights created by co-investment in Approved Organisation activities. It may, at its discretion, make these rights available to other parties that it funds, unless specifically agreed otherwise.

When funding is provided to create intellectual property, the Agency will consider the ownership and use of rights of the intellectual property on a case-by-case basis. We will take into consideration the State Services Commission’s Guidelines for treatment of intellectual property rights in ICT Contracts.

Use of national systems, standards, guidelines and processes

When the Agency funds the development of systems, standards, guidelines and processes to deliver national benefits, e.g. for tolling A toll payable under Part 2 of the LTMA. , and these are applicable to investment proposals, they shall be used unless specifically agreed otherwise with the Agency.

Monitoring and reporting of outcomes

Continuous improvement at policy, process and operational levels is a fundamental concept in achieving value for money Selecting the right things to do, implementing them in the right way, at the right time and for the right price. . Achieving this requires feedback of the performance of the investments made in land transport activities, through monitoring and reporting of their outcomes.

Approved Organisations, the Agency(state highways) and other investment partners are accountable for the monitoring the outcomes of their transport investments from strategy to implementation. A monitoring programme shall be agreed with the Agency as part of the construction/implementation funding application.   

Monitoring and reporting of investments is expected to track key indicators that are linked to desired outcomes, over an appropriate period of time, and will demonstrate the success of the investment in achieving the outcomes. Monitoring and reporting will be undertaken at a level commensurate with the type of activity (strategy, programme, package or project) and the scale and risk of investment in individual activities.

Financing arrangements

The Agency 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. The Agency will consider the arrangements for financing its share of the cost of capital projects on a case by case basis. The Agency 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), or
• cost of the activity through other arrangements, including tolling A toll payable under Part 2 of the LTMA. and partnerships.

Costs of finance

As a rule, the Agency will not fund depreciation, interest costs or any other financial servicing costs of capital projects, directly or indirectly, unless by specific agreement, and, in any event, will not meet such costs when it funds the direct capital cost of the project itself on  Pay-Go basis.

The Agency 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 The fund established under section 10 of the LTMA will be reduced.  The Agency will not also directly fund remedies or costs arising from events covered by hedging or insurance.

Risk based approach

The Agency and all organisations allocated funding from the NLTF The fund established under section 10 of the LTMA 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

The Business Case Approach and use of Agency's processes and procedures

The Business Case Approach incorporates a risk based approach with the requirement that the strategic case Is the proposal aligned with the organisation’s strategic context and plans?  The strategic case determines whether or not an investment is needed. It demonstrates the case for change and the strategic assessment of evidence, i.e. how the proposal will further the aims and objectives of the organisation.  be reviewed at each stage to ensure that the problem still warrants addressing despite changes in growth, land use and other assumptions. The Business Case Approach 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, e.g. the Economic Evaluation Manual, 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 The fund established under section 10 of the LTMA must follow the Agency's policy, processes and procedures, including the use of the Agency's Procurement Manual. (See Consistent with the LTMA The Land Transport Management Act 2003, as amended from time to time. and the GPS A Government Policy Statement on Land Transport Funding issued under section 86 of the LTMA .)

Debt risk management

Where debt funding is employed, whether through a loan arrangement or a PPP procurement arrangement, the Agency 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 Agency Board The NZ Transport Agency Board. .

Public ownership expected

The Agency expects that property and infrastructure for which it provides funding assistance will be in public ownership and available to users who have paid for its access and use.

The Agency 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 Agency's right to compensation, should the purpose or ownership of the facility change, is protected.

Compensation when purpose or ownership changes

The Agency must receive compensation for property and infrastructure it has funded from the NLTF The fund established under section 10 of the LTMA 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.

The Agency may waive its right to compensation in the event that ownership changes but the purpose and use of the property and infrastructure remains intact. The Agency expects that the provision of service through use of the facility would continue to be delivered at a similar cost prior to the change in ownership.

Tailored engagement

The Agency(planning & investment) will tailor its level of engagement and monitoring of Approved Organisations and the Agency(state highways) based on its assessment of its investment risk.

In practice, the Agency(planning & investment) will not involve itself at an individual activity level where activities are low risk and low cost and where the Agency has assessed that Approved Organisations and the Agency(state highways) have the capability to deliver their programmes effectively.  In such cases, the Agency will delegate the management of programmes of low risk and cost activities with as few compliance requirements as possible.

Apportioning of risk

The Agency's Procurement Manual requires that all risks should be appropriately apportioned to the party (contractors and Approved Organisations/the Agency) best able to manage it.  

Unless otherwise agreed at the time of funding approval, the Agency’s acceptance of project risks will be in the same proportion as the Agency’s total funding of the project, from all funding sources.

Exercise of delegated authority

The Agency 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 Agency's expectations of those exercising delegations is set out in this Knowledge Base.

The Agency requires its investment partners to take full accountability for all decisions and actions made under delegation. Investment partners should apply the Agency’s Assessment Framework to achieve desired outcomes and the best value for money Selecting the right things to do, implementing them in the right way, at the right time and for the right price. .  The Agency reviews a sample of investment decisions made under delegation and expects that its investment partners will also monitor and report their performance under delegation.

Readiness for funding

As a rule, activities are only approved for funding when they are ready for implementation.  The Agency 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 implement 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 Interrelated and complementary combination of activities that, when delivered in a coordinated manner, produce synergies – can span more than one work category and more than one activity class, e.g. a programme could include a road improvement and public transport improvement activities. negotiations between the programme owner and the Agency are concluded.

No retrospective funding

The Agency does not provide funding assistance retrospectively, unless by prior agreement. Any organisation that commits or commences a new activity prior to Agency's 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 the Agency's 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, and

• 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 the Agency and the investment partner.

The Agency will pay claims on an accrual basis, i.e. submitted on evidence of work completed without requiring a supplier invoice.