REPORT TO COUNCIL
CONFIDENTIAL
Meeting Date:
15 MAY 2013
Subject:
AROUND THE MOUNTAIN
CONSTRUCTION.
File No.:
910/150/9/1
CYCLE
TRAIL
INITIATION
OF
Report by Mr I Marshall, Group Manager Services and Assets dated 6 May 2013.
1.
SUMMARY OF REPORT
The report updates the status of the Around the Mountain Cycle Trail Project.
It discusses the project from four different perspectives - the business case, the price
estimate, the risks and the delegations necessary to expedite construction.
Signature
Author
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Executive Staff
Report to Council
2.
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RECOMMENDATION
(a)
THAT THE REPORT TITLED “AROUND THE MOUNTAIN CYCLE TRAIL
INITIATION OF CONSTRUCTION” BE RECEIVED.
(b)
THAT A SUPPLEMENTARY APPENDIX “PROJECT ESTIMATE” BE
RECEIVED AND READ AS PART OF THIS REPORT.
(c)
THAT THE COUNCIL RESOLVES TO INITIATE THE AROUND THE
MOUNTAIN CYCLE TRAIL.
(d)
THAT STAGE ONE OF THE AROUND THE MOUNTAIN CYCLE TRAIL BE
APPROVED FOR CONSTRUCTION WITH A BUDGET LIMIT OF
$3.7 MILLION PLUS GST.
(e)
THAT AUTHORITY TO LET CONTRACTS FOR THE CONSTRUCTION AND
ASSOCIATED ACTIVITIES OF THE AROUND THE MOUNTAIN CYCLE
TRAIL BE DELEGATED TO THE GROUP MANAGER SERVICES AND
ASSETS AND THE CHIEF EXECUTIVE COLLECTIVELY SUBJECT TO THE
APPROVED BUDGET LIMIT.
(f)
THAT THE RECOMMENDATIONS LISTED ABOVE AND APPROVED BY
THE COUNCIL BE RECORDED IN OPEN MEETING.
3.
REPORT
3.1
Background
National Context
Cabinet approved an appropriation of $47.5M for the establishment of the
National Cycleway Fund to implement cycleway projects throughout New Zealand in
the 2009 financial year. The Ministry of Business Innovation and Employment
approves and administers this funding.
Cycleways can revitalise communities by generation revenue and employment
opportunities. The initial focus is to create a series of ‘Great Rides’ of New Zealand,
with the long term aim of creating a network that links these cycleways together
through branding and/or route development. The project has been branded
Nga Haerenga, the New Zealand Cycle Trail.
The main objectives of the New Zealand Cycle Trail project are to:




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Generate short and long terms benefits (including employment);
Provide a high-quality asset that offers a world-class cycling experience, and
enhances New Zealand’s competitiveness as a visitor destination;
Maximise complementary benefits eg, for health, the environment,
commuters, the events sector; and
Engage local communities;
In June 2010, the Minister of Tourism confirmed that the Ministry would award
Southland District Council $4,000,000 plus GST towards the construction of
the Around the Mountain Cycle Trail.
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A funding agreement was entered into with the Southland District Council (SDC) and
to date the Ministry has paid $300,000 plus GST towards design and consent costs.
Consent was obtained by SDC apart from the Oreti Gorge Section of the trail which
was declined. This required a change to the proposed route of the trail, SDC then
lodges a fresh application to the Ministry.
Ministry officials met with SDC and reached agreement of the approach.
Subsequently an agreement for the Ministry to provide $3.7M for the construction of
Stage One of the Trail was entered into.
Local Context
The concept of a bike trail that runs from Walter Peak Station on the shores of
Lake Wakatipu and traverses the valley past the Mavora Lakes through to Mossburn,
Lumsden, Five Rivers, Athol, Garston and terminates at Kingston started to take life
back in 2009. Business case development for the Around the Mountain Cycle Trail
began later in 2009. The Southland District Council has been presented with several
reports relating to the trail. One of the earliest was in June 2010 when a report by
Mr R Capil dated 18 June 2010 regarding the Ministry of Tourism Funding
Agreement for the Around the Mountain Cycle Trail was discussed.
The Council at that time resolved to enter into a funding agreement with the Ministry
of Tourism “….TO UNDERTAKE AND COMPLETE THE CONSTRUCTION OF
STAGE ONE OF THE AROUND THE MOUNTAIN CYCLE TRAIL - FROM WALTER
PEAK TO MOSSBURN”.
Subsequent decisions by the Council resulted in resolutions to:
(a)
Accept an offer of services for bridge design services (Dec 2012).
Delegate powers to the Chief Executive “….THE AUTHORITY TO EXECUTE
ALL ACCESS DEEDS, CONCESSIONS OR EASEMENTS ON BEHALF OF
COUNCIL FOR THE AROUND THE MOUNTAIN CYCLE TRAIL. (Sept 2011)
“….DELEGATION TO THE ACTIVITIES PERFORMANCE AUDIT
COMMITTEE THE POWER TO APPROVE A FUNDING AGREEMENT
BETWEEN COUNCIL AND THE MINISTRY OF BUSINESS, INNOVATION
AND EMPLOYMENT. (January 2013).
The most significant recent decision was made at the Activities Performance Audit
Committee (APAC) meeting - 13 February 2. The Minutes - Activities Performance
Audit Committee (APAC) - 13 February 2013 (CONFIDENTIAL) record the following
resolutions:
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(a)
THAT COUNCIL SUPPORTS THE AROUND THE MOUNTAIN CYCLE
TRAIL AS A PROJECT OF REGIONAL SIGNIFICANCE OFFERING
ECONOMIC AND COMMUNITY DEVELOPMENT BENEFITS TO THE
SOUTHLAND DISTRICT.
(b)
THAT COUNCIL AGREES TO GUARANTEE A FINANCIAL COMMITMENT
OF UP TO $4 MILLION (GST EXCLUSIVE) TO UNDERWRITE THE COSTS
FOR COMPLETING BOTH STAGE ONE AND STAGE TWO AS REQUIRED
BY THE FUNDING AGREEMENT BETWEEN COUNCIL AND THE
MINISTRY OF BUSINESS, INNOVATION AND EMPLOYMENT.
Report to Council
(c)
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THAT COUNCIL AGREES TO SIGN THE COUNCIL AMENDED FUNDING
AGREEMENT AND REQUIRES THE MINISTRY OF BUSINESS,
INNOVATION AND EMPLOYMENT FUNDING COMMITTEE AND MINISTER
OF TOURISM COUNTER SIGN THIS AMENDED FUNDING AGREEMENT.
The latest decision relating to the Trail was made by the Activities Performance Audit
Committee (APAC - March 2013). The minutes of the Activities Performance Audit
Committee (APAC - 27 March 2013 [(CONFIDENTIAL)] records the following
resolution:
RESOLVED THAT THE ACTIVITIES PERFORMANCE AUDIT COMMITTEE
APPROVES THE USE OF AN ALTERNATIVE PROCUREMENT PLAN FOR
PROCURING THE CONSTRUCTION OF THE AROUND THE MOUNTAIN CYCLE
TRAIL.
Funding Agreement
The funding agreement has been signed by the Ministry of Business Innovation and
Employment. The key conditions of the agreement are:
•
•
•
•
•
The Ministry will provide funding of up to a maximum total of $3,700,000 plus
GST to be applied towards the construction of the trail.
Stage One of the trail be completed by 31 October 2012.
Stage Two be completed by 31 December 2015.
Southland District Council to obtain or provide funding for Stage Two up to a
maximum of $4M plus GST.
The agreement becomes binding on the Council once the first claim for
funding has been submitted to the Ministry.
Contract Tendering
Contract documents have been prepared and submitted to experienced contractors. At the
time of drafting this report contractors have priced Sections 1,2,4 and 5. Section 3 is still
being priced. Analysis of the tender rates received has been used to calculate the cost of
Sections 1, 2, 4 and 5. The rates have also been used to inform estimates for all other
sections of the trail including Stage Two.
Next Steps
The next steps necessary, generally in chronological order are:
•
•
•
•
•
•
•
•
•
•
•
•
•
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Decision by Council to proceed,
Finalise land owner agreement issues - Stage One,
Negotiate contract prices,
Let contracts,
Start work,
Finalise resource consent requirements - Stage Two,
Progress landowner agreements - Stage Two,
Get resource consent - Stage Two,
Complete track construction of Stage One,
Clarify funding commitments for completion of whole track,
Finalise landowner agreements - Stage Two,
Procure works - Stage Two,
Start work on Stage Two,
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•
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Complete all work,
Trail completed.
The significant milestones are:
•
Complete construction of Stage One - 30 October 2013,
Resource consent granted for Stage Two,
Funding confirmed for Stage Two,
Complete construction of the whole trail - end of 2015.
Four Major Elements
There are four major elements to the remainder of this report that will help inform Councillors
about the decision that has to be made in order to commit to starting construction of the trail.
They are:
•
•
•
•
The Business Case,
The Price,
The Risks,
The Delegations.
The Business Case
The business case supporting the development of the Around the Mountain Cycle Trail came
to life in 2009. Although some aspects of the case are now out of date they principally relate
to timing. The key aspects are still relevant, they are:
Context
The information provided for this report is based on the original material submitted as part of
the National Cycleway Project - Around the Mountain Cycle Trail Feasibility Study and
Business Case Development Report originally submitted in January 2010 for the Ministry of
Tourism and Venture Southland. This report assisted in the Around the Mountain Cycle
Trail project being confirmed as a Quick Start National Cycleway Project and the
subsequent approval of the $4M funding agreement to part fund the Trail’s completion.
Operating Model and Costs
A designated Principal Operator commission based model for marketing, promotion and
managing the maintenance and quality standards of the Around the Mountain Cycle Trail as
a high quality tourist product has been developed. Council will receive from licensed
commercial operators utilising the trail 5% of the gross turnover which will contribute to the
Cycle Trail maintenance. This will be made up from commission on all itinerary bookings
made through the official website, accommodation bookings made through the official
website, bike hire, baggage transfer services and shuttle bus transfer bookings made
through the official website. In this original Business Case and Feasibility Report track
maintenance was averaged out at $150,000 per annum for the first five years and based on
conservative user numbers this cost would be offset by the revenue earned by way of the
commission model.
This model is currently operating for other trails of a similar nature in New Zealand.
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Public Good Benefits - Local, District, Regional
The benefits of the Around the Mountain Cycle Trail are many - encompassing economic,
tourism and community development opportunities. It should also be noted that while the
Northern Southland communities will experience the direct benefits initially it is recognised
that the flow on effects and benefits will spread across the district, region and nationally.
The Around the Mountain Cycle Trail as proposed is a high quality tourist product - aimed at
a target market of New Zealand and Australians in the 45 to 70 age group with high
disposable income. The Cycle Trail is the catalyst and the product which the government
has identified to invest in to promote and stimulate regional economic development.
The feedback from the Northern Southland community is extremely positive towards this
project and much of the feedback highlights an understanding of the potential benefits
gained from such an investment.
It must be noted that over time the benefits will flow to other areas of the district and region with the concept of other trails being developed by using the Around the Mountain Cycle
Trail as the main trail with by product trails linking off it - Mavora to Te Anau, Lumsden to
Gore, Lumsden to Invercargill to Bluff as examples.
The development of this high quality tourist product also has benefits to the wider Southland
region - with this product being very marketable to the existing targeted international market
of Australia. Of similar significance is the ability to utilise this trail as a means to develop a
significant domestic marketing campaign to target Auckland initially but then other areas of
New Zealand. The value of such marketing opportunities is assisted by the ability to fly
direct to Queenstown as the tourist magnet for Southland to then get the benefit of the
tourist spend in this region. The flow on of these visitors to other areas of Southland adds
value for the whole of the Southland region.
There are also benefits to the local Southland residents - offering recreational and lifestyle
benefits. All Southlanders will have access to this community asset so all Southlanders
have the opportunity to benefit.
Operational Budget
Operational Budget - Five Year Forecast
Principal Operator model for managing Cycle Trail and itinerary planning booking system
Income
2013/14
2014/15
2015/16
2016/17
2017/18
Total
$228,000
$390,000
$540,000
$660,000
$810,000
Total
$260,000
$395,000
$475,000
$575,000
$705,000
($32,000)
($5,000)
$65,000
$85,000
Expenditure
Operating Surplus
(Deficit)
Notes:
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$105,000
Booking office itinerary planning enterprises traditionally only manage to breakeven Income from
central real time booking system booking fees at 10%,
60% cyclists booking through central booking system,
5% commission trail levy on, accommodation, bike hire, bus transport, a nd bag transport.
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Financial Forecast
Cashflow Model Around the Mountain Cycle Trail
Direct Spend Realistic
Total
Annual
Cashflow/Economic
Benefit
Cumulative
Cashflow
Excl GST Cash
Flow
Year 1
2013/14
$4,405,616
Year 2
2014/15
$7,613,984
Year 3
2015/16
$10,113,748
Year 4
2016/17
$12,585,440
Year 5
2017/18
$15,397,853
$4,405,616
$12,019,600
$22,133,348
$34,718,788
$50,116,641
$3,916,103
$6,767,986
$8,989,998
$11,187,058
$13,686,980
Cashflow Model Around the Mountain Cycle Trail
Direct Spend Pessimistic
Total
Annual
Cashflow/Economic
Benefit
Cumulative
Cashflow
Excl GST Cash
Flow
Year 1
2013/14
$4,405,616
Year 2
2014/15
$7,613,984
Year 3
2015/16
$8,863,432
Year 4
2016/17
$11,843,414
Year 5
2017/18
$12,747,048
$4,405,616
$12,019,600
$20,883,032
$32,726,446
$45,473,494
$3,916,103
$6,767,986
$7,878,607
$10,527,479
$11,330,709
Cashflow Model Around the Mountain Cycle Trail
Direct Spend Optimistic
Total
Annual
Cashflow/Economic
Benefit
Cumulative
Cashflow
Excl GST Cash
Flow
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Year 1
2013/14
$4,405,616
Year 2
2014/15
$8,811,232
Year 3
2015/16
$12,047,640
Year 4
2016/17
$15,491,940
Year 5
2017/18
$17,958,720
$4,405,616
$13,216,848
$25,264,488
$40,756,428
$58,715,148
$3,916,103
$7,832,206
$10,709,013
$13,770,613
$15,963,307
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Notes to Cash Flow
Realistic Model
•
•
•
•
Multi-day cyclists Year Five
Day cyclists Year Five
Guided cyclists Year Five
International cyclists
14,000
14,000
1,500
20%
Pessimistic Model
•
•
•
•
Multi-day cyclists Year Five
Day cyclists Year Five
Guided cyclists Year Five
International cyclists
12,000
12,000
1,200
20%
Optimistic Model
•
•
•
•
Multi-day cyclists Year Five
Day cyclists Year Five
Guided cyclists Year Five
International cyclists
15,000
15,000
3,000
20%
While it is difficult to accurately assess the numbers of cyclists and type of cyclists riding the
Around the Mountain Cycle Trail the conservative estimate can be determined based on the
following factors:
•
•
•
•
Location to Queenstown and Queenstown’s ability to attract domestic and
international tourists,
Wilderness and vista attractions on this Cycle Trail,
This Cycle Trail is a substantial four day cycle ride making the cost of travelling to
and from the trail justifiable by both domestic and international travellers,
Joint marketing of Around the Mountain Cycle Trail by two of New Zealand’s largest
tourist companies:
-
Trojan Holdings Limited, Ultimate Hikes/Milford Guided Walk,
Real Journeys Limited.
It is not common that a new tourist enterprise has the opportunity to be linked to two
of New Zealand’s largest tourism customer bases by two of New Zealand’s leading
tourist companies. Linking into these companies marketing campaigns will give this
Cycle Trail every advantage to develop a substantial international customer base.
Ability to Meet Financial Projections Realistic Model
•
•
•
•
•
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14,000 multi-day cyclists by Year five is achievable when taking into account
Around the Mountain/Queenstown location.
There is already sufficient accommodation in Northern Southland to meet the
projections of numbers riding the Cycle Trail up to Year two.
A short term plan is to shuttle transfer cyclists from Mavora to Te Anau if
accommodation is not completed at Mavora in Year One.
1,500 multi-day guided cyclists is an extremely conservative number when the
Otago Central Rail Trail is already taking similar numbers of guided cyclists per
annum.
The before and after spend of cyclists on this Cycle Trail will be considerable as
the majority of users will travel from outside of the area.
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Guided Cycle Tours
Numbers of cyclists using the guided option on the Cycle Trail will be significant for
the following reasons:
•
Wilderness aspect of the Cycle Trail,
•
Two days predominantly riding with no cellphone coverage,
•
Guided cycling trips will be marketed by Real Journeys,
•
This Cycle Trail will likely have the significantly highest percentage of
international cyclists on the trail of all of the Quick Start Cycle Trails, budgeted at
20% by Year Five. The trail has the potential to attract 40% plus international
tourists.
Meals
Daily spend on food and beverage four days $309, $77 per day, multi-day cyclists.
Bike Hire
Cycle hire estimated 40% of all multi-day cyclists will hire bikes at $49 per day.
Bus transport
Baggage transfer estimated 50% of cyclists will move bags by bus operator at $15 per bag
per day. Of cyclists riding the entire trail, 70% are estimated to use shuttle bus from end of
trail, Kingston back to Queenstown.
Accommodation
Average price $100 per twin room, $50 per PAX.
Earnslaw Trip Real Journeys
It is estimated virtually all multi-day cyclists and 10% day cyclists will travel to Walter Peak
on the Earnslaw.
Spend of Cyclists
Average spend of multi-day cyclists riding the trail, including travel and options of before and
after accommodation per PAX = $945.
Day cyclists per day spend $40 per cyclist.
beverage, travel to and from trail.
Included in the estimated spend; food
In summary, the Around the Mountain Cycle Trail creates a high economic spend for the
following reasons:
1.
Cycle Trail is a four day cycle ride, creating more economic opportunity.
2.
This Cycle Trail will likely have the highest number of international cyclist of all of
the cycle trails in New Zealand ie more high yield guided cycling.
3.
With Cycle Trail departing from Queenstown, high quality vistas, and marketing
support from Real Journeys this Cycle Trail will develop a substantial high-yield
guided product.
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Existing Cyclists
Just over 1,000 cyclists cycled on the wilderness Mount Nicholas Road to Lake MavoraTe Anau in 2010/11.
Commission Model to Fund Cycle Track Maintenance
There will be no charge for cyclists riding on the Cycle Track. The Principal Operator will
collect on behalf of Council from licensed commercial operators 5% of gross turnover to
cover cycle track maintenance, made up from:
•
Commission on all itinerary bookings through the official website,
•
For accommodation providers to be on the official website they will be contracted
to pay 5% of all bookings on the Cycle Trail, official website or direct with the
accommodation providers,
•
5% commission on all bike hire,
•
5% commission on baggage transfer,
•
5% commission on shuttle bus transfers.
It is the combined approach of all commercial operators along the trail paying track
maintenance commission that will make this Cycle Trail financially sustainable.
Note: There is no plan to charge commission from food and beverage service providers.
Financial Analysis
Financial Projections are Based on the Following Assumptions:
Cycle Trail Numbers
(a)
Numbers riding this Cycle Trail by year five are based on the number of
domestic cyclists riding the complete length of the Otago Central Rail Trail plus
20% international cyclists, a total of 14,000 cyclists per annum riding the
Around the Mountain Cycle Trail by Year Five.
(b)
Otago Central Rail Trail averages 6% international cyclists per annum on the trail.
In Central Otago 6% of all tourists travelling in the region are international travellers,
the same percentage as international cyclists on the Otago Central Rail Trail.
In comparison Queenstown has 40% international tourists however to be
conservative it is estimated there will only be 20% international tourists cycling the
Around the Mountain Cycle Trail by Year five.
(c)
Conservatively it is estimated there will be 20% international cyclists cycling Around
the Mountain Cycle Trail by Year five. There are already over 1,000 international
cyclists riding from Walter Peak Station on the Mount Nicholas road to Lake Mavora
and on to Te Anau/Southland. There are more international cyclists riding this
section of Around the Mountain Cycle Trail than the total number of international
cyclists riding the Otago Central Rail Trail in the 2008/2009 tourist season.
International cyclists ride the Mount Nicholas Road for the scenic and wilderness
values (vistas).
(d)
Year Five cycle numbers, riding the complete trail:
(i)
(ii)
Total
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Domestic cyclists per annum
International cyclists per annum
11,100
2,800
13,900
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(e)
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For the following reasons it is assumed that the Around the Mountain Cycle Trail
can conservatively attract the same number of domestic cyclists as the
Otago Central Rail Trail.
(i)
(ii)
(iii)
(iv)
(v)
(vi)
(vii)
(viii)
(ix)
There will only be a limited number of opportunities in New Zealand for
four day cycle rides with quality of vistas that the Around the Mountain Cycle
Trail can offer (high scenic value),
Location of Cycle Trail to Queenstown,
Grade 1, flat easy cycling in a wilderness experience with an option of
Grade 2 on Day 1,
Cycle Trail passes through seven communities including Queenstown and
likely development of two new communities Mavora Lakes and Five Rivers,
Market awareness is growing and it is likely the market will grow at a similar
pace as development of multi-day, Grade 1 cycle trails over the next five
years. Because of the capital cost of developing multi-day cycle trails it is
unlikely that cycle trails will be built faster than the market can grow,
Around the Mountain Cycle Trail will be one of the flagship cycle trails
showcasing the best of New Zealand. Around the Mountain Cycle Trail due
to departure from Queenstown will have a much stronger marketing base
than other cycle trails,
All financial assumptions are based on 13,500 cyclists riding the total length
of the trail by Year Five,
Financial spend is based on commercial operators experience on the Otago
Central Rail Trail,
Turnover in the first three years takes into consideration the limited
existing accommodation available in the small Northern Southland towns
along the trail,
It is estimated by Year Five the need will be for 60 twin en-suite
accommodation rooms constructed over three locations in Northern
Southland. The construction over the first five years is an estimated capital
cost $2,500 per square metre ie, $62,500 per room including associated
infrastructure. This is a total capital cost of $12.5M for accommodation.
Food and beverage infrastructure development is estimated at $3,800,000.
The total private infrastructure in Northern Southland over the first five years
= $16.5M.
Return on Investment and Private Enterprise Opportunities
The funding of up to $8,000,000 for Around the Mountain Cycle Trail is the catalyst to
triggering an additional $38,750,000 in regional and private investment over the next decade.
Private investment in accommodation infrastructure will be significant for Around the
Mountain Cycle Trail in Northern Southland. There is sufficient accommodation to cater for
anticipated and budgeted Cycle Trail numbers in Year One and Two. Northern Southland
will require approximately $16.5M in new accommodation infrastructure over the first five
years.
The up to $8M invested to fund the Around the Mountain Cycle Trail will be the catalyst for
private investment in infrastructure in Northern Southland (predominantly accommodation
ie, 75 rooms x 3 locations = 225 rooms at 25 m2 by $2,500 per m2 = $62,500 per room =
$12,500,000 for accommodation and say $4,000,000 for food and beverage infrastructure
a total of $16,500,000 in private investment), over the next five years.
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Market Assessment
Industry Trends
The New Zealand Cycleway Market Research Project was commissioned by the Ministry of
Tourism. Tourism Resource Consultants undertook to define visitor demand for cycling
experiences and prepared a Market research Report in September 2009. The following are
some relevant key points directly quoted from this Market Research Report prepared by
Tourism Resource Consultants:
•
Global Cycling Trends
There is strong growth in rail trails and similar cycling products internationally, with
over 100 existing and 23 proposed trails in Australia, and a network of trails in the
UK.
Most domestic cycle tourists come from the larger population centres of
Auckland, Canterbury, Otago and Wellington, and participation in cycle activities by
domestic tourists has increased by 67.4% in the five years since 2004.
International visitors from the UK (24%), Australia (23%) and the USA (11%) make
up the largest share of all international visitor markets. However, those international
tourists with the highest participating rate in a cycling activity come from Switzerland
(10% participating from this market), the Netherlands (9%), Ireland (8%), Germany
(7%) and the UK (5%). In addition, international cycle tourists spend 1.5 times as
much per trip compared with the average international visitor, stay twice as long, and
visit twice as many destinations.
The New Zealand Cycleway Experience
Around the Mountain Cycle Trail
Length and Difficulty of Ride
Trail Structure
Support Services/equipment
Safety and Security
Ride gradient a G1 for 4 days
Broken into manageable, iconic
experiences
Available and to be developed
as part of overall experience
Comply
with
safety
and
security regulations
Linkages and synergies with other trails
Working in conjunction with other regional and local trail providers
Availability of information
Marketing collateral to evolve
to include website, brochures
and media publicity
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Current Market Segments
Segmenting recreational and tourism cycling markets is a challenging task. The two are not
mutually exclusive and there is considerable overlap between segments. The market for
cycleway experiences is a combination of cycle tourists, recreational cyclists, and the broad
potential market consisting of those who do not currently regard themselves as cyclists.
Lessons Learned
The case studies show that the entire visitor experience is important, not just the cycling
aspect. This is particularly true for those markets whose primary motivation is not cycling.
Accommodation, services, information, scenic values and other activities combine to make the
experience more appealing to a broader range of visitors. For a larger portion of this market
the social and cultural aspect of a cycling holiday is important. Itineraries that allow for frequent
stops to enjoy a coffee and explore local heritage and cultural attractions and overnight in
comfortable lodgings are ideal.
Ongoing maintenance, trail upgrades and good information/signage all result in a better visitor
experience. Multiple access points and a range of trail difficulty should result in broader
usage. It is particularly important to provide safe, easy trails for beginners and families.
Wide trails (eg over two metres) where cyclists can ride two or three abreast enhance the
social aspect of the cycle experience.
The success of off road trails depends on their ability to offer cyclists a safe, traffic-free
environment. Easier trails will have a broader user appeal, but progression and challenge are
important factors for a smaller segment of the market.
What the Market is Looking For
In general, international cycle tourists want easy multi-day trips with good supporting services
or events. The holidays can also be location based and utilise nearby trail networks.
They require trips that take in New Zealand’s landscape, natural environment and culture.
Domestic cycle tourists and recreational riders are not primarily focussed on cycling but on the
broader experience. This group is likely to be older or consist of families rather than single
visitors or couples.
Both markets are looking for easy access to safe and traffic free trails. For the domestic
market in particular, there is often limited opportunity for this within their local region.
Opportunities for Growth
New Zealand has great potential to grow its international and domestic cycle tourism markets if
it can deliver in three key areas; remove the barriers to participation (eg safety), enhance the
product, and market the experience.
International visitors from the UK, Australia and the USA make up the largest share of all
international cycle tourism. These are also New Zealand’s key visitor markets and the
potential to leverage off existing awareness in these markets is huge.
There is considerable potential to grow the Australian market due to its close proximity and
similar market demand characteristics in regard to cycling participation, which grew by 21% in
the last year (2007 - 2008).
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Participation levels for cycling by domestic tourists are currently around 1.5% in
New Zealand. However strong growth in cycling and participation rates of 23% for the
adult population suggest there is considerable potential to increase cycling while on holiday.
Regional Cycling Clusters
Tackling trail development from a regional perspective enables a more strategic approach to
trail networks and the ability to connect trail experiences either directly or via other transport
options.
Supporting services such as accommodation, cafes, cycle hire and cycle friendly towns are
critical.
Touring Cyclists and Cycle Holidays
Much of the market is looking for scenic, easy (eg average 2-3º trail gradient), traffic free
trails, with a maximum of 3-4 hours riding per day - equating to about 30-40 hours.
Around the Mountain Cycle Trail Synergy
The Around the Mountain Cycle Trail is a significant tourism asset and focus for community
and regional development - using the natural pull of Queenstown as an international visitor
destination.
The growth and development of this project and partnerships created supports the regional
and national significance of this project. Major contributing factors supporting this
development include:
•
Access and servicing of the Trail and Trail users is achieved by the local
communities.
•
Trail provides access to a unique and renowned special part of
New Zealand and provides an opportunity to access and develop natural attractions.
•
Trail will attract a large range of travellers - especially a market with disposable
incomes and a willingness to spend time and money enjoying the Trail experience
and related activities.
With regard to this the Around the Mountain Cycle Trail will enhance the
Northern Southland area as a visitor destination. It will generate additional jobs
serving the market demand and associated requirements and will link directly with
regions and national cycling initiatives.
Price
The estimates for the project are being developed on the basis of identifying the likely lower
and upper bounds of the construction estimate. Using this method the level of contingency
is more transparent. When estimates are prepared for individual projects they often include
a component of contingency typically around +10%. When a series of projects or contracts
are combined into a programme of work typically over runs and under runs occur within the
programme. Historically within programmes such as the Roading renewal programme, the
level of contingency utilised is around +2%. The lower bound estimates for the Cycle Trail
include project by project contingencies in the order of 2%. There is a high probability the
finished cost will be close to this estimated cost. The upper bound estimates include project
by project contingencies in the order of +10%. There is a very low probability that final costs
will exceed this level of contingency.
As noted in the section above four sections of the trail construction have been tendered.
The prices received have been used to refine the estimates of the work yet to be tendered.
There are still several elements of the work to be competitively priced including:
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•
Fencing materials.
•
Fencing labour.
•
Swing bridge and concrete bridge construction.
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These elements have been priced using information from recent works on similar trails in this
area.
Works in the Queenstown and Roxburgh areas are particularly relevant.
Contract documents for tendering this work are well advanced but not yet out to tender.
Elements of the management of the project also are to be included in the overall project
estimate. The estimates of these elements are based on current rates being paid for the
equivalent services.
The final estimates are not able to be incorporated in this report as the tender for Section 3
does not close until Wednesday, 9 May. Also some landowner agreements are not
completely settled yet and the options under consideration do have different cost estimates.
However assessment of the tender prices that have been received shows that earlier
estimates are higher than the tendered prices. Broadly this leads to the opinion that the
complete trail construction is comfortably achievable within the budget. The qualifier to this
statement is no allowance for the cost of capital (interest) has yet been included.
Of course much more certainty than this is required in order to give a high level of
confidence to the Council about the project estimate. This is needed to enable a decision to
proceed or not to be made. Once started the Council is committed to completing the project.
A project estimate supplementary appendix will be circulated to Council prior to the meeting
on 15th May. Where landowner items still remain unresolved the highest cost option will be
included in the project estimate.
Risks
Essentially, putting aside political risk there are broadly three areas of financial risk to the
Council. First, is the risk the cost of project will be greater than the amount budgeted.
Secondly, is the risk that construction on Stage One will be delayed, for whatever reason,
and the Council is unable to complete it within the agreed timeframes.
Thirdly, dependent on the final route definition of Stage Two, is any challenge to the
alignment originally sought but not granted by the commissioner.
More detail on each is set out below.
Risks of the costs increasing for Stage Two
The risk of cost overrun on construction arises from having uncertainty over the final prices
for completion of Stage Two. These prices have been estimated by extrapolation based on
the contract prices for Stage One.
While there may be general confidence the extrapolated costs are materially correct a
number of factors could adversely affect these extrapolated cost estimates.
First, Council does not hold contractually enforceable tenders for Stage Two. This means
Council carries the risk of price increases. Construction costs may increase as a result of
increased cost inputs, for example, while construction companies are finding demand weak
at present factors such as the Christchurch rebuild may significantly increase construction
demand with the effect it will push up prices.
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Secondly, final completion of Stage Two is scheduled, under the terms of the Agreement
with the Ministry, to be completed in 2015. This is a significant period of time on which to
carry price risk, particularly given the current weak demand environment. While Council may
anticipate competitive pricing on Stage One, should the demand for construction change, or
generally there is a lift in economic activity, it seems unlikely it will be able to obtain similarly
competitive pricing for Stage Two.
Thirdly, there is an inherent risk that the extrapolated costs will differ from the final tendered
costs for Stage Two. The exactness required for tendering may identify costs overlooked or
under estimated when providing an indicative estimate. While these may not be large, on a
tightly costed project they may well be significant and push the cost of completion beyond
the budgeted amount.
Mitigation

Basing the estimates on competitive tenders for very similar work in the same area
and generally the same timeframe is arguably the most robust estimating method for
establishing the unit price of work. The greater risk lies in quantifying the volume and
type of work when the final alignment is unconfirmed. To a degree this is mitigated
by virtue of the fact one route is not substantially different from the other and so the
costs are not materially different. Also a larger contingency allowance for this
situation demonstrates the upper level of cost estimate.

Price increase can be minimised by reducing the time from completion of stage one
to completion of stage two. The best prices will be achieved by putting the stage two
work to the market whilst stage one is still in construction and by allowing a wide
window of time for contractors to schedule the work in their “quite periods”. All work
would be completed by April 2015, potentially as early as November 2014.
Construction delays to Stage One
While most landowners have given their consent, there is currently one landowner consent
outstanding and subject to conditions. Not having unconditional landowner consents, at the
commencement of construction, carries the risk of increased costs. The cost may be due to
having to alter the route to accommodate the landowner's requirements, or a legal challenge
against Council. The risk to Council lies not so much in whether it has a legal right but the
cost of protecting and enforcing its legal position against an unwilling party. Any matter
which requires legal action to enforce Council's rights to construct has the potential to add
significantly to the cost of construction. While it may be possible to schedule construction
around obtaining the landowner consent, it gives rise to fragmentation which in turn hinders
efficient construction.
Mitigation


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Proactive management of the landowner negotiation process is needed to get
agreements in place as quickly as possible. Skilled negotiators are being utilised and
alternatives are being planned to strengthen the negotiating position and allow an
alternative if negotiations are unsuccessful. In most cases the Council is in a strong
negotiation position because of the existence of public land, railway and public road
for alternatives.
Contractors in tendering the work are made aware of any uncertainties in terms of
route choice and provisions have been made to negotiate changes that arise.
Tendered rates are the basis for costing variations.
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Final route definition
If the final route definition takes the original alignment of the Upper Oreti for which consent
was sought, but not granted by the Commissioner, then there is a material risk that an
original objector such as the Fish and Game Council may contest Council’s right to construct
along this alignment. While Council may have a legal road on which it can construct, this
does not preclude a challenge from a party such as Fish and Game. The challenge may be
a legal challenge or it may take an alternative form and become a significant political issue.
A legal challenge could be time consuming and add significantly to the cost of the project.
If Council ultimately embarks on the Upper Oreti alignment there is a risk that it will be
subject to inquiry as to why it sought a hearing from the Commissioner if it at all times had
the right to construct along the legal road, and in particular why it then chooses to override
the consent conditions. While this is largely a political risk it does have the potential to
increase costs as a result of challenges to Council's right to construct along its preferred
alignment. Again, the risk to Council lies not so much in whether it has a legal right but the
cost of protecting and enforcing its legal position against objecting parties who may be
willing to resource their opposition to the preferred alignment. Even if the delays are at this
point envisaged to be of a timing nature, timing delays in a project of this kind are likely to
carry a financial cost.
Mitigation



The process used to confirm the existence of the legal road is the only legal process
available to confirm such a status. There is no appeal provision.
Utilising an experienced planning consultant to analyse and compare the new
situation versus the original consent application and the impacts and mitigations will
give us better understanding of the issues to address.
Early dialogue with the previous objectors will help them understand the process and
the Councils objectives and reduce the likelihood of objection and appeal processes
causing delays.
Delegations
As noted earlier in this report the Council at the meeting held on the 21st September 2011
resolved: THAT THE SOUTHLAND DISTRICT COUNCIL DELEGATES TO THE CHIEF
EXECUTIVE THE AUTHORITY TO EXECUTE ALL ACCESS DEEDS, CONCESSIONS OR
EASEMENTS ON BEHALF OF COUNCIL FOR THE AROUND THE MOUNTAIN CYCLE
TRAIL.
In order to expedite progress with construction it is recommended that delegated authority to
let contracts for this project be granted to specific senior officers of Council. All contracts will
have been competitively priced and evaluated on a non-price pass/fail basis.
Also negotiations to reduce any elements of the work that appear out of line with other
tender rates will be carried out.
An appropriate method would be to delegate authority to let contracts for the Around the
Mountain Cycle Trail to the Group Manager Services and Assets and the Chief Executive
collectively. The limitation on this delegation would be the project budget for the trail.
3.2
Options Considered
The options come down to deciding to initiate the construction of the Around the
Mountain Cycle Trail or not.
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Policy and Plan Considerations
The trail project has received resource consent although some minor variations to
that consent do need to be applied for.
3.4
Consideration of Community Views
The trail project has been the subject of Resource consent processes. The project is
also included in the draft Annual Plan.
3.5
Financial Considerations provide
The Ministry of Business Innovations and Employment have agreed to provide
$3.7M of funding for the trail. A guarantee of an additional $4M from the
Southland District Council was signalled by resolution of the Activities Performance
Audit Committee (APAC) - 13 February 2013 (CONFIDENTIAL).
3.6
Legal Considerations
There are no significant legal implications associated with this project/decision.
4.
CONCLUSION/SUMMARY
The Around the Mountain Cycle Trail Project has reached the point where a decision
has to be made to initiate the project or not. Tender prices have been sought for a
significant portion of Stage One of the Trail. This competitive pricing process has
helped confirm these sections of the project can be built below budget. Further work
is needed to extrapolate these prices across Stage Two and so confirm the whole
project is able to be built within budget. A whole project estimate will be completed
and circulated to Council members prior to the Council meeting. This will allow
visibility of the full project estimate and allow an informed decision to be made.
Initial indications based on tender prices received indicate the whole project is
achievable within budget.
Ian Marshall
GROUP MANAGER SERVICES AND ASSETS
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