Regulating Aviation - Rodney Hide Speech
Friday 26 Sep 2003 Rodney Hide Speeches -- Economy
Speech to Aviation Industry Association Divisional Meeting, Queenstown, Friday 26 September 2003
Thank you for inviting me to speak today.
I am here for two reasons. The first is because I am responsible for the State Services Commissioner's Inquiry into the Civil Aviation Authority. The second is because I asked to speak to members of your Association after being visited by two of your senior council members.
I asked to speak directly to association members to share my concerns.
We have a very professional and well-run aviation industry in New Zealand. We should be proud of our operators, our pilots and engineers. They are world class.
We also have a regulator, the Civil Aviation Authority, or CAA for short. The CAA has enormous powers. It can take a pilot's licence because it considers him or her not a "fit and proper" person. It can close any air operator down in the interests of safety.
The CAA has enormous power over the industry, the people who work in it, their lives and their livelihood. It is also has a huge part to play in ensuring the public's safety.
That CAA's power has been conferred upon it by Parliament. My concern as a Parliamentarian is that its power be used appropriately and well. The power should be used only to ensure safety. It should not be misused or abused to make people's lives a misery.
Conflict of Interest
In particular, I do not believe that CAA inspectors should be able to work as consultants for the aviation companies that they are charged with regulating. I believe that any such work creates a hopeless conflict of interest. I do not see how a CAA investigator can work having two paymasters - the regulator on the one hand, and a company that they are supposed to be regulating on the other.
It is just such a conflict of interest that Mr Douglas White QC is investigating following my questions for written answer to the Minister Harry Duynhoven.
Let's first be clear about the rules. I found out through Parliamentary Questions that the standard CAA employment contract has the following section on conflict of interest (PQ 3156):
The employee shall not engage in or continue secondary employment, self employment, commercial activities, unpaid activities or hold an appointment as Director of a company without the prior express written approval of the employer where such employment or activity is, or in the opinion of the employer is reasonably likely to be, in conflict with the duties of the employee or the interests of the CAA. The employee shall ensure that by their conduct they are, and are seen to be, fully independent and impartial in all aspects of their work for the CAA. Independent means avoidance of situations which would tend to impair objectivity or create personal bias which would influence judgements. The employee shall ensure they are free from any obligation to, or interest in, clients, their management or owners.
The last sentence is critical: "The employee shall ensure they are free from any obligation to, or interest in, clients, their management or owners". That to me rules out CAA investigators working part time on the side for aviation companies.
The Public Service Code of Conduct is even tougher:
Public servants should not only avoid circumstances in which their personal interests conflict with the interests of the department or Minister, but should also avoid those circumstances in which there could be the appearance of such conflict.
It is even the appearance of a conflict of interest that is to be avoided.
I was concerned about what was going on at the CAA. I asked the Minister this question (PQ 3717):
Have any Civil Aviation Authority staff members sought approval in writing to engage in or continue secondary employment, self employment, commercial activities, unpaid activities or hold an appointment as director of a company where such employment or activity is reasonably likely to be in conflict with the duties of the employee or the interests of the Civil Aviation Authority?
The answer came back:
One staff member formally notified the Civil Aviation Authority in writing of a possible conflict of interest when he commenced employment with the Authority in 2002. The reason for his advice no longer exists.
So only one staff member had sought approval from the CAA as required in writing of a possible conflict of interest.
I then asked the following question (PQ 4418):
Is the Richard Cox listed on the Civil Aviation's web page as a Flight Operations Inspector the same Richard Cox who is listed on the New Zealand Companies Office registry as the sole shareholder and director of Quality Assurance Consultants Ltd; if so, has Mr Cox disclosed to the Civil Aviation Authority's Director his interest in the company and any conflicts of interest he therefore might have in carrying out his work for the CAA; if he has so disclosed, what actions have been taken by CAA (if any), and on which dates?
The Minister's reply suggested to me that his previous reply was not accurate:
Yes. Mr Cox advised the Director of his interest in the company in May 2002. The Director assessed that Mr Cox's interest in the company would not conflict with his Civil Aviation Authority duties.
The Minister's previous reply had implied that only one staff member had sought approval in writing to cover a possible conflict of interest. That staff member was certainly not Mr Cox. Mr Cox was employed by CAA long before 2002.
The Minister was evasive with his original answer. He replies about a staff member notifying a conflict of interest in writing, not seeking approval in writing, which is what the question asks. It's that sort of trickiness that ensures opposition MPs like me keeping on with our questions.
I then asked the Minister (PQ 4818):
What action did the Director undertake and what information and assurances did he seek to assess that Mr Cox's interest in the company would not conflict with his Civil Aviation Authority duties?
The Minister sought at extension of time to reply to this question because "it has not been possible to obtain the information required to enable me to respond to this question by the due date," i.e. within a week. The question was straight forward enough. But it took the Minister three weeks to answer. Here is what I learnt:
Mr Cox formed his company to provide quality assurance advice to assist another company gain air operator certification. Mr Cox's work for that company would form part of the exposition required by the Civil Aviation Authority when it later assessed the company's application for certification. Mr Cox undertook the work in his own time and the Director knew the nature of the work Mr Cox would be undertaking before he commenced it.
The Director considered Mr Cox's work would not only be in the interests of the company but also of the Civil Aviation Authority, as certificating the applicant company would foster aviation safety. The Director was satisfied there would be no conflict of interest with Mr Cox's normal duties.
The Director advises me that he met with Richard Cox and the CEO of the company for whom Mr Cox would be working and discussed the work that was to be completed by Mr Cox. During the meeting, the Director advised me he received information and assurances regarding the role of Mr Cox. The Director wrote to the CEO after the meeting confirming his acceptance of Mr Cox's involvement.
The Director was satisfied that Mr Cox's work would be independently reviewed by the CAA's General Aviation Group when assessing the rest of the company's Part 135 exposition.
So we have a Flight Operations Inspector for the CAA also working through his own company as a quality assurance consultant to an aviation company. He was receiving work from a company that was part of the industry he was charged with regulating.
I have now obtained through the CAA a letter written by Director John Jones to the company concerned authorising Mr Cox's private work. The letter says in part:
I understand that the role Richard will take will be that of a Quality Assurance Consultant (Part-Time).
As Director of the Civil Aviation Authority and knowing the professional standards applied by my staff I do not believe that any conflict of interest will arise out of this situation, and that I am please to be able to sanction Richard's role.
Richard has assured me that it will in no way effect [sic] his role within the CAA, and that his consultancy will be performed in his own time, using his own resources.
I wish you well with your new operation and look forward to your Rule Part 135 certification.
And so it is clear that the Director authorised the work. My concern was whether the Inspector played any role in investigating the company he was contracted to. I asked the Minister the following (PQ 5776):
Was Mr Cox, whether alone or as part of a team, ever involved in his role as a Civil Aviation Authority staff member in investigating, auditing or examining the company concerned; if so, what was Mr Cox's involvement with the company in the role of a Civil Aviation Authority staff member and over what dates was he so involved?
The Minister didn't answer my question. He replied instead as follows:
As the Chairman of the Civil Aviation Authority has advised me that he has requested the State Services Commission to undertake an investigation into this matter and related issues, I am therefore unable to provide the answer to the Member's question at this time.
My questions had sparked a State Services Commissioner's Inquiry. The Inquiry has allowed the Minister (and the CAA) to duck answering Parliamentary Questions concerning conflicts of interest and the work of Mr Cox since June. We now have the Minister and the CAA operating outside of proper parliamentary scrutiny. I have to say that dodging parliamentary scrutiny is an unhealthy characteristic that has developed under Prime Minister Helen Clark. Harry Duynhoven is following the Prime Minister's lead.
Nonetheless, the Minister, the CAA chairman, and the State Services Commissioner have been sufficiently alarmed at what my questions have revealed to call for an inquiry. I am quite happy for them to have their inquiry. I am not at all happy that through the process the Minister has put himself and his department above the scrutiny of parliament.
The Terms of References were published on 27 June. By way of background to the Terms of References we learnt what Minister Harry Duynhoven was not prepared to tell Parliament in answer to my questions:
In May 2002, following the conduct of a Special Purpose Inspection and the Director's suspension of aviation documents related to an aviation company, a person employed by the CAA as a Flight Operations Inspector, who was also the Team Leader for the inspection, entered into an agreement with that company to assist in the preparation of certain manuals necessary to obtain an air operator certificate under the Civil Aviation Act.
And so we learn that the flight inspector was involved in the very investigation that saw the company's aviation documents suspended. He was paid by the taxpayer to investigate the aviation company. He then entered into a contract with the company to assist it to get Part 135 certification.
We also know from Parliamentary Questions that CAA Director John Johns had approved Mr Cox's work with the company. The problem is just not with the inspector but with the Director and by direct accountability with the CAA Board who monitor the Director's performance.
Mr Douglas White QC is investigating the CAA's "conflict of interest" policy, the particular case in question, whether the Director acted properly, the policies and procedures for special purpose inspections and investigations, and "any other matters".
Mr White QC was due to report by 16 September. He is still going. I had thought he would have reported before I was due to speak here today.
I believe it is wrong for CAA staff to be privately employed by the very aviation operators that they are investigating. I believe that the conflict of interest and potential for abuse of their power in such a situation is so obvious that both the director and chairman of the CAA have no option but to stand down. They appear not to see that it is wrong.
I believe they have failed in their responsibilities. After all, the Director approved the investigator working for the very company that was effectively suspended from business by his investigation.
The leadership of the Aviation Industry Association don't agree with me. President John Funnel and Board Member Ms Irene King sought a meeting with me to complain about the number of questions I was asking of the CAA. I must say I was most surprised by such a complaint. It is a Parliamentarian's job to ask questions and to hold the executive to account.
For the record I have this year asked the Minister 113 questions concerning the policies and practices of the CAA - 17 of which are awaiting the outcome of Mr White's inquiry.
Mr Funnell told me that he saw nothing wrong about a CAA investigator working privately for an aviation operator. Ms King told me that it happened all the time. I was astounded by their report and asked them to repeat them both so that I could take a clear note.
I simply do not accept that CAA regulators should be working part time for the industry that they are regulating. I believe that there is an impossible conflict of interest in such a situation and the potential for an abuse of the power conferred by Parliament upon the CAA.
Your Association has also made a submission to Mr Douglas White QC. It was prepared on your behalf by a H R Barclay.
The AIA's submission spells out a lack of first hand knowledge ( 2.3):
AIA is not in a position to make specific comment on that particular incident, as it does not have first hand knowledge of the circumstances.
Nonetheless, your Association does say ( 2.8):
With the benefit of hindsight, it is perhaps regrettable that a representative of the regulator who participated in the suspension of the aviation documents should later be involved with that same organisation in a private capacity.
However, your Association downplays the obvious potential conflict of interest ( 2.10):
Without being privy to the precise details of the alleged incident, AIA would be surprised if there was any predetermination or hidden agenda involved. There may well have been an unfortunate judgement call, but AIA would submit the judgement call was made for bona fides reasons.
Your Association claims - or at least the writer of your submission claims - that the "genuineness" of the CAA has never been called into question ( 3.8):
The writer can say unequivocally that whilst the actions of the CAA may been questioned, the bona fides of their action has never come into question.
In fact, your Association claims - without "first hand knowledge of the circumstances" or "being privy to the precise details of the alleged incident" - that the private work by the CAA inspector was simply to assist the operator get back in the air as quickly and as safely as possible ( 7.8):
It is submitted the actions in the case presently under review were to assist the operator to get back into business as quickly as possible and endeavour to ensure the future compliance with the regulatory requirements.
I am not sure how your Association was able to reach that conclusion.
Your Association concludes your submission by confirming that there is nothing to investigate ( 7.10):
AIA is firmly of the view conflict of interest is not an issue.
It's an extraordinary submission. Your Association doesn't know what role the investigator played in suspending the aviation documents from the company concerned, it doesn't know what work he tried to secure from the company, it doesn't know how many hours were to be involved, or how many thousands of dollars were to be paid, or what expenses were to be charged, or what was actually paid, or what role the same inspector would have in certifying the company, or what policy or process was followed in approving such private work. Notwithstanding that, the Aviation Industry Association in their submission to the State Services Commissioner's Inquiry declares that there is nothing that needs investigating.
Regulating with integrity
I disagree with the AIA's conclusion. I am alarmed further by the assertions of your representatives when they came to see me. The apparent acceptance of a regulator working on both sides of the regulatory fence suggests to me that your Association and the Government need to rethink the relationship between the industry and the regulator.
I would also like your Association to rethink the role that Parliamentarians play in holding the executive and their Departments to account for the money they spend and for the power that they wield. It is not a perfect process by any means. But it is an important safeguard nonetheless.
As an apparent result of my questions and the State Services Commissioner's review, the CAA has already issued a comprehensive conflict of interest policy to all employees. This is standard practice for most large organisations and I am very surprised that a Government agency such as the CAA didn't apparently have one hitherto.
There has been a change. But it is not enough.
I believe that both the Chairman and Director of the Civil Aviation need to step down over the failure to avoid putting a staff member into a situation of an obvious and elementary potential conflict of interest.
I cannot see how the CAA can retain its integrity without such a change at the top. I believe that we can reach that conclusion just on the facts that we know already.
I have followed the CAA for some years.
I have some suggestions for the new leadership at the CAA:
· Make existing systems work as designed
· Delegate and devolve properly
· Set sensible deadlines and work to them
· Avoid ad hoc procedures
· Replace non performing staff
· Consult and cooperate properly
· Act on the extensive recommendations made by various Reports that have been commissioned.
It is clear that the Minister is going to await the result of Mr Douglas White's investigation. It is an important investigation. It is important not just for the CAA but for the aviation industry in New Zealand and for the Public Service generally.
My hope is twofold. First, that travelling public will be that much the safer as a result of proper parliamentary scrutiny of the CAA. Second, that your members will be that much clearer about both their rights and responsibilities and also the standards they can expect when interacting with the CAA as regulator.
That will be a good result.
Thank you for your invitation to meet with you today.
For more information visit ACT online at http://www.act.org.nz or contact the ACT Parliamentary Office at firstname.lastname@example.org.