The second major recommendation on structural change in the Final Report dealt with the optimal organisational arrangements for the entities identified under the preferred Regional Aggregation groupings.

The Report concluded that the Binding Alliance model, Council-owned Regional Water Corporations, and the Status Quo model (‘for some large local water utilities’), all had ‘the potential to meet all of the evaluation criteria’ (p.61). In the light of the submissions it received, the Final Report (2008: 61) also emphasised that ‘many councils favour models that can be adopted to minimise impacts on asset ownership, revenues, employment and communities — models which negate the need for wide-ranging structural change’, which ‘in most cases’ would suggest the formation of ‘a regional binding alliance to deliver water supply and sewerage services’. It even recognised potential problems with the Binding Alliance model: ‘The binding alliance model is not perfect because there is potentially tension between strategic decision making and program implementation as these functions are conducted by separate legal entities’, which could be remedied by ‘close cooperation between the alliance entity and the member councils, together with concise service agreements backed by legislative force’.

This analysis is in broad agreement with the Davis, Paddon and Chong (2008: 17) assessment of their conceptually identical Regional Mandatory Alliance, which they contend represents ‘a minimalist’ option since it ‘imposes the least change’ on local water utilities. Under this model, water utilities ‘retain ownership of assets; conduct local operations; and make local decisions’. Moreover, ‘an agreed scope of pooled activities would be set up centrally and participants simply pay pro rata for their share of the services’. The authors contend that membership of the model ‘must be mandatory’ otherwise ‘it risks falling apart in the face of difficulties or a lack of interest’.

In comparison with the Council-Owned Regional Water Corporation model, the only other structural-change organisational model recommended in the Final Report, bearing in mind the third option is the Status Quo model, both Davis, Paddon and Chong (2008) and the authors of the Final Report (2008) seem to be correct that the Binding Alliance model represents a ‘minimalist’ option. However, the analysis of the Binding Alliance model in the Final report, as well as the Council-Owned Regional Water Corporation model, leaves many questions unanswered.

By far the most important of these neglected aspects of the Binding Alliance model, which is recommended for 14/15 of the 32 proposed Regional Aggregations, and by far the most ‘restructured’ of these groupings, as we can see from Appendix 1, Map 5, resides in the thorny problem of costing this model. Indeed, the authors of the Final Report (2008: 61) freely admit to ignoring this critical question by noting that ‘comprehensive costing has not been conducted for the models discussed in this chapter’. Instead the Final Report has relied exclusively on a single submission for information on costing the Binding Alliance. It noted that ‘RAMROC has provided indicative costs for its binding alliance model’. On the basis of these costs, the Final Report estimated that ‘each new alliance would require between $375 000 and $720 000 to resource per annum’, which equates to between roughly $7 million to $14 million across NSW per year. This impost is defended on grounds that ‘the benefits from this model, including professional strategic planning and access to specialist technical skills, which are essential in any future delivery arrangements are expected to more than counterbalance these costs’ (p.62).

The highly unsatisfactory nature of this ad hoc method of costing is underlined by an analysis of the original submission by RAMROC (2008), which outlines the ‘methodology’ used by RAMROC in its costing procedure. RAMROC (2008: 5) arrived at its costings as follows: ‘As a straw man for the sake of this submission, the initial format for RAMROC Water could be an office with a general manager, an engineer and an administrative officer’ (original emphasis). From this, RAMROC divined that ‘the cost of that service would be roughly, divided amongst 18 councils (smallest six paying $20k pa; medium ten paying $40k pa and the largest two paying $75k pa)’. In addition, in its submission, RAMROC observed that ‘finding answers to the big questions will take both time and money’ (pp. 5–6). Thus,

RAMROC suggested these latter funds should be provided by the NSW government.^[3]

The highly arbitrary ‘back-of-the-envelope’ nature of this costing method cannot be over-estimated. Indeed, it is easy to illustrate that the Final Report has erred badly in using the RAMROC (2008) submission calculations as the basis for its cost estimates. In the first place, the $375 000 and $720 000 range advanced in the Final Report (2008: 62) completely ignores establishment costs.^[4] Secondly, with 18 member councils, RAMROC would be by far the largest Binding Alliance in NSW, with the next largest (Central Tablelands Region) containing nine councils, and most proposed models of this kind incorporating only between five and two councils. It follows that per-capita costs for both member councils and connected properties would vary enormously. Thirdly, with the estimated $375 000 and $720 000 range, how can this provide a Binding Alliance office, a general manager, an engineer and an administrative officer in all cases? Finally, no estimates of the influence of purported economies of scope are made.

The ad hoc nature of the costing provided for the Binding Alliance in the Final Report serves to undermine many of the favourable claims made in support of this model. Perhaps the most worrying dimension of the inadequate costing is the potential for the costs of small Binding Alliances to be far higher than their larger counterparts, since almost all the costs of the Binding Alliance organisational entity are fixed costs, predominantly in the form of salaries. Thus for Binding Alliances consisting of a few members, these fixed costs will be spread across only a limited number of councils thereby raising the impost on individual municipalities. This suggests that a cautious ‘case-by-case’ approach should be taken to Regional Aggregation. If individual councils can demonstrate excessive costs or unusual circumstances, then provision should be made for them to be exempt from Regional Aggregation.