We have received a number of questions about Government changes to water services delivery, write Paul Buetow, Partner; Ezekiel Hudspith, Partner; and Miles Rout, Solicitor in Dentons’ Major Projects and Construction and Environment and Planning teams.
Water infrastructure investment has been patchy for many years. Amongst other things there have been issues with funding of infrastructure (including, due to borrowing constraints), underinvestment in infrastructure, and issues with water quality.
The water quality crisis in Havelock North in 2016 demonstrated there was an urgent need for better regulation, and in some cases different structural arrangements, if all water delivery is to be safe and efficient.
The last Government’s proposed water reforms (which it called “Affordable Water”) would have involved the creation of 10 water entities covering large regions of the country. Councils would not have a choice about whether to participate in the new organisations.
The Coalition Government’s ongoing reforms (“Local Water Done Well”) provide greater flexibility for councils, but naturally that comes with risks: councils that have invested in their water infrastructure may be unwilling to take on the infrastructural deficit of their historically less diligent neighbours. And the councils that most need to undergo reform may not necessarily be the ones that choose do so.
The Coalition Government’s changes have proceeded in stages. The first stage came with the Water Services Acts Repeal Act, which repealed the previous government’s Three Waters legislation.
The second stage, the Local Government (Water Services Preliminary Arrangements) Act, among other things requires councils to develop water services delivery plans (WSDPs) by 3 September (this month) 2025. It gives councils a number of options for setting up water services entities, including making it easier for them to set up council-controlled organisations.
The third stage, the Local Government (Water Services) Bill, is expected to pass into law soon. Its purpose is to provide a range of structural and financing tools for local government to provide water services flexibly and cost-effectively.
There are a number of options for councils. In practice, councils across the country have largely settled on either continuing to directly provide water services or on establishing a council-controlled organisation (CCO), whether owned by a single council or jointly by a group of neighbouring councils. The changes are expected to go into effect across the country from July 2026.
The third Bill contains a variety of regulatory requirements for water services providers. These include a list of required objectives, compliance with certain financial principles (including ringfencing revenue received from water services), and restrictions on privatisation.
What this means for contractors
The provision of water services in many areas will likely be carried out by different entities from 1 July 2026.
At this stage, it appears most councils in the North Island will be keeping or establishing council-controlled organisations with their neighbours. On the other hand, most councils in Northland, Gisborne, Marlborough, Canterbury and Southland have indicated they are likely to continue to provide services through in-house business units. Watercare will continue in Auckland, but Wellington Water will be replaced with a new entity.
All of this will mean that contractors will need to set up projects with new organisations and different people.
Panels will be reconvened and long-term contracts may not be transferred to the new entities entirely unchanged. Some of these new entities may have quite different contracting arrangements from the middle of next year. In particular, contractors may face more pressure on their pricing and terms from newly established larger water entities, who will be keen to demonstrate value for money.
On the upside for contractors, the new financing arrangements are intended to allow water service providers to borrow and otherwise obtain money for water infrastructure in a financially sustainable way. The ultimate purpose of this is to see more money being spent on water infrastructure in those places that have historically underinvested.
For contractors, it is hoped this will mean more projects, more bidding opportunities, and a more consistent flow of work.
What we do not know
There are lingering questions about whether the Government will step in to force some councils to group with their neighbours for the provision of water services, now or in the future.
The third Bill provides for the appointment of Crown facilitators to work with water service providers, and in serious situations Crown commissions may be appointed, as they have been in the past with councils.
These steps could have an impact on contractors engaged with those entities, and at this stage it is not clear what the threshold will be for council action. Will the government step in to force changes if the water service delivery plans it receives in September 2025 are unsatisfactory? And if so, what effect will that have on the timeline for reforms?
We have written an extensive series of articles about this topic on our website, available at https://www.dentons.co.nz/, including articles about each of the three Bills and about elements of the new regulatory framework including the new Wastewater Environmental Performance Standards.
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you should not take, or refrain from taking, action based on its content. Dentons does not accept any liability other than to its clients, and then only in relation to specific requests for advice. For specific advice, contact your legal advisor or the Major Projects and Construction team at Dentons on
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