No way to run a country

16:00, Feb 23 2013

Whitewash is the only word to describe the deputy auditor-general's report on the Government's relationship with SkyCity.

The report dumps all the blame on civil servants. But its description of events makes it very clear the prime minister, his office, his Tourism Ministry, and the Ministry of Economic Development spent a year trying to stitch up a convention centre deal with SkyCity before any other interested party got a glance in.

By doing so, John Key and his officials subverted the normal processes required for government procurement. These are designed to ensure solutions are canvassed widely and the best option chosen. As a result we'll get the convention centre SkyCity wants to build on terms highly favourable to it, which may not be the convention centre New Zealand needs. Here's how the prime minister and his colleagues abused the system, according to the chronology of actions described in the deputy auditor-general's report.

The challenge of building an international-scale convention centre in Auckland has troubled business and Government since the mid-1990s. Competing ideas failed to deliver the optimal solution of type, amenity, place and viability.

Auckland was never short of analysis, particularly government-commissioned studies in 2006 and 2009 by Horwath HTL, New Zealand's leading tourism sector consultant. Horwath's 2009 report said there were three options for a convention centre:

Private ownership through a mechanism such as a build, own, operate, transfer scheme.


Direct ownership by the public sector.

Creation of a special purpose entity accountable to the public sector but operating at arm's length - for example, a statutory body or council-controlled organisation.

After analysis and extensive consultation in the sector, Horwath concluded the third option, public ownership, had the widest support.

But SkyCity had other ideas. Even before the report was delivered in July 2009 it began pushing its own plans. It met senior officials on May 12 and hosted the prime minister at SkyCity on May 14.

The deputy auditor-general reports: "The prime minister's diary includes a meeting with SkyCity's chief executive on 14 May 2009 ... SkyCity confirmed that this meeting took place. Neither participant can recall the discussion, and think that it was probably just an opportunity for them to meet rather than for any particular purpose."

Over the following months, SkyCity had easy access to key government officials, including the prime minister's chief of staff.

On August 24, the prime minister, in his role as minister of tourism, received a briefing paper from his ministry on the convention centre.

The deputy auditor-general reports: "The prime minister/minister of tourism signed the briefing paper but did not agree to officials progressing to a business case and implementation plan. He annotated the briefing paper by hand, stating that 'we should close off the SkyCity angle first'."

Over the following months the prime minister and his close colleagues remained highly engaged in SkyCity's case, including the request the company had made to them for relief from existing gaming regulations in order to improve the financial viability of the project for SkyCity.

For example, Finance Minister Bill English met SkyCity executives on October 15 and the prime minister and his chief of staff dined at SkyCity with its executives on November 4. In December, the chairman of SkyCity wrote to the prime minister expressing the company's commitment to building the convention centre.

The abuse of proper procurement processes took a curious turn in February 2010 when Gerry Brownlee got involved as minister of economic development.

The deputy auditor-general's report says Brownlee "referred to 'too many people talking to SkyCity', and the prime minister's chief of staff said he was happy to step back. Mr Brownlee also mentioned the need for an 'open process' with 'no holds barred'".

For the sake of the best outcome for the country, it was essential to get the convention centre project in to the proper procurement process. But Brownlee failed to do so. The Government held three informal meetings with other interested parties in April and May before issuing an "Expression of Interest" (EOI) notice on May 19. But it was a convoluted roll-up of three big issues: seeking advice on how to promote an international convention centre; where to build it; and where other locations in NZ might get investment for this.

What the deputy auditor-general doesn't report is that the third point benefited the convention centre in Christchurch, Brownlee's constituency. It had plans for a $105m expansion with its owner, the city council, prepared to commit $40m only if the centre could find the additional funding.

Thus the EOI was very complex, yet with a June 18 deadline the four parties that did respond had only a month to work up their proposals, Meanwhile, SkyCity had been working closely with the Government on an exclusive basis for the previous year.

The deputy auditor-general's report criticises the way the EOI was run, the evaluation of the submissions and the failure of the Government to move to the next step in required procurement process - issuing Request for Tenders or Request for Proposals.

Instead the Government very quickly went back to negotiating exclusively with SkyCity. The negotiations were tortuous. The Government didn't announce SkyCity was the preferred bidder until a year later, in June 2011.

The deputy auditor-general faults the Government for its preferential treatment of SkyCity. But this is a massive understatement of the relationship between John Key and his closest colleagues and SkyCity. She also concludes that even if the process were better, the outcome would likely have been the same.

This astonishing assertion flies in the face of the analysis by the convention sector, as expressed in the 2009 Horwath report.

SkyCity now has the prime minister over a barrel. He has invested so much of his political capital in this deal he has to deliver.

SkyCity will have no trouble getting more pokies, improving its short-term profitability, and an extension to its 25-year casino licence due to expire in eight years, doing wonders for its long-term profitability.

This very sweet deal sends a very clear message: If you want to build a convention centre, school, road, hospital, prison or any other form of infrastructure, don't bother with the appropriate processes.

Do an end-run around the competition - deal directly with the prime minister.

This is no way to run any country.

Sunday Star Times