Governing at arm’s length: how councils keep line of sight when services move to CCOs

TL;DR

Councils across New Zealand are increasingly adopting council-controlled organisations (CCOs) to deliver water services under the government’s Local Water Done Well regime. Most residents will soon receive water services through these organisations, yet councils remain accountable for performance. This article explores how councils can retain visibility and governance quality in an arm’s-length delivery model, and how tools including emerging AI support can assist without replacing human judgment. (Beehive Article)

Across New Zealand, councils are reshaping how core services such as drinking water, wastewater and stormwater are delivered. Under the government’s Local Water Done Well framework, councils were required to submit Water Services Delivery Plans outlining how they will meet regulatory, financial and infrastructure demands. (DIA Plans)

In total, 44 councils have chosen to deliver water services through a council-controlled organisation, while 23 councils have opted to retain in-house delivery. This means around 76 percent of New Zealand’s population will receive water services through a CCO model. 

The intention behind this shift is to create delivery models that are financially sustainable, better resourced and focused on long-term resilience and regulatory compliance. But with delivery happening at arm’s length from elected members, councils face a new governance challenge: maintaining line of sight across independent organisations while still exercising accountability on behalf of their communities.

Accountability must stay constant

For elected members and senior leaders, the responsibility to ensure services are safe, reliable and financially sustainable has not changed. What has changed is how that accountability is exercised.

When services are delivered through a separate legal entity, councils lose direct operational control. Instead, they must rely on performance and risk information that is timely, meaningful and aligned with community outcomes. If reporting is slow, opaque or overly focused on internal operations, councils can lose confidence in what is happening between formal reporting cycles.

This is not a structural flaw in CCOs themselves. It is a gap in how performance governance frameworks are designed and implemented.

Where line of sight commonly slips

When delivery functions are outsourced to or organised as CCOs, several common patterns tend to appear:

• Reporting becomes periodic instead of continuous. Formal reports may only reach council governance bodies quarterly or annually, leaving limited visibility into emerging issues or early warning signs.

• Performance measures drift away from council priorities. Internal operational metrics may not map clearly back to outcome goals set by the council.

• Risk information is siloed. Strategic and operational risks are documented but are often disconnected from forward-looking performance reporting.

• Autonomy complicates alignment. Independent boards and executives rightly focus on organisational stewardship, but councils still need to verify that expectations and obligations are being met.

These patterns are already visible in council decisions on water reform and delivery models, including new cross-council CCOs being formed in regions like Northland and Waikato.

What effective arm’s-length governance looks like

Good governance in a CCO environment is not about more reporting. It is about better quality reporting that aligns with strategic accountability needs.

Here are design principles that help councils maintain line of sight:

• Shared performance language: Councils and CCOs should agree on common definitions for outcomes, measures and thresholds so reporting is consistent and meaningful.

• Outcome-focused measures: Information should emphasise what matters to communities... service reliability, compliance, financial health... rather than activity lists.

• Exception reporting: Governance teams benefit most when reports highlight only what’s outside expected norms or thresholds.

• Integrated risk and performance information: Risks should be visible alongside performance measures to help councils see not just where performance sits today but where it might head in future.

When these elements are integrated into performance frameworks, councils retain confidence without slipping into micromanagement.

How AI can help, when used well

Performance and governance teams are often short on capacity yet face rising expectations for quality reporting. AI can support these teams, but only when it augments human judgement rather than replacing it.

When used responsibly, AI tools can:

• Spot anomalies in large data streams that might otherwise go unnoticed.

• Bring emerging risks to attention early by identifying patterns across performance domains.

• Help draft clearer performance narratives so governance bodies spend less time compiling data and more time making informed decisions.

In Opal3, AI features are designed to support performance and risk workflows. These features aim to make it easier for teams to focus on interpretation and decision-making, not just data gathering. They do not replace governance; they enhance visibility into what matters.

Arm’s length should not mean blind trust

Council-controlled organisations will continue to play a growing role in how councils deliver essential services. The challenge is no longer whether CCOs can deliver water services. It is whether councils are equipping themselves with performance and risk frameworks that provide clarity, confidence, and ongoing visibility.

Line of sight across arm’s-length organisations does not happen by accident. It must be designed, reinforced with shared standards, and supported with systems that bring insight to the surface early. Councils that invest in these foundations now will govern more effectively and with greater confidence in the years ahead.