Certificate of Fitness Service Delivery Regulatory Model · 1.1 This paper outlines the WoF/CoF Project team’s recommendations for changes to the regulation of the Certificate of

CoF Service Delivery Regulatory Model 1 of 51

Vehicle Licensing Reform Programme WoF and CoF Project

Certificate of Fitness Service Delivery

Regulatory Model



TABLE OF CONTENTS

1 Introduction 5 Purpose Background Scope Approach

2 Needs Analysis 9

The Current CoF System The CoF System Value Chain The CoF Market - Drivers & Influencers - Customers - Inspections - Current Providers - Potential Providers - Barriers to Entry - Substitutes - Competitive Intensity Problem Definition

3 Framing the Future Service Delivery Regulatory Model 19

Future-State Guiding Principles Regulatory Settings, the Provider Market & System Outcomes Optimising System Performance: Managing the Tension Points

4 The Proposed CoF Service Delivery Regulatory Model 22 Goals & Objectives Regulatory Parameters - Appointment of Inspecting Organisations - Approval of Inspection Sites - Occupational Regulation of Inspectors - CoF Business Process - Audit Targeted to Risk - Monitoring & Evaluation - Regulated Fees

5 System Risk Mitigation 29 Variation in Inspection Standards Market Discontinuities in Service Provision Reduced Coverage and/or Increased Prices Price Competition in Areas of High Demand

6 System Outcomes 32 Safety Customer Benefits Regulatory Costs Service Provider Implications Cost Benefit Analysis Overview


7 Implementation Considerations 35

Implementation Issues - Pink and Green Sticker Removal - Inspector Supply - Inspector Training Supply and Demand - Managing Applications - Industry Engagement - Changing Current Deeds/Notices of Appointment for Inspecting Organisations - Transition Arrangements for Current Inspectors - Transport Agency Market Intelligence CoF System Links & Dependencies - ORS - Taxi Meters - TSDA Service Agreements - Accreditation - CoF Variable Frequency - WoF System Spill-Over Effects - Other Certification Services Transport Agency Implications

Appendices 43

A CoF Reference Group Members & Meeting Dates B Selected Current-State Regulatory Settings C Distribution of Current CoF Inspection Sites D Assessment Criteria & Performance Indicators E Options’ Analysis Overview


1 INTRODUCTION

Purpose 1.1 This paper outlines the WoF/CoF Project team’s recommendations for changes to the regulation

of the Certificate of Fitness (CoF) service delivery system.

1.2 The paper includes:

Proposed regulatory settings that achieve the Vehicle Licensing Reform (VLR) programme’s goals and objectives for the CoF service delivery system

An assessment of how the regulatory settings will mitigate key system risks

An assessment of anticipated CoF system outcomes, including an updated economic appraisal

Proposals for addressing related implementation considerations.

1.3 A companion paper outlines an implementation strategy that encompasses a costed implementation plan.

Background VLR & the CoF Service Delivery Work Stream

1.4 The review of the regulatory framework governing the provision of CoF inspection services is part of a wider reform of the Warrant of Fitness (Wof)/CoF system, which in turn forms part of the VLR programme being led by the Ministry of Transport and the NZ Transport Agency (the Transport Agency).

1.5 The overall VLR programme aims to:

Reduce regulatory burdens while achieving similar or improved safety and other outcomes

Align the costs of regulatory intervention with safety risks and benefits

Improve customer service and reduce compliance and administration costs

Achieve net benefits from the reforms.

1.6 Policy work undertaken in the first phase of the VLR programme on the provision of CoF services identified the opportunity to achieve considerable compliance cost savings without compromising the system’s current objectives, particularly those relating to vehicle safety. The estimated net social benefits of the CoF improvements ranged from $160 million to $460 million over 30 years ($14-$41 million per annum) and were estimated to cost in the range of $2.2 million to implement and involve $0.6-$0.9 million in ongoing costs (excluding depreciation).1

1.7 In response to the Cabinet paper, Better Vehicle Inspection and Licensing, which summarised the VLR review’s findings, Cabinet:

Noted that the New Zealand Transport Agency will review its policies relating to approving and managing certificate of fitness providers to enable inspections to take place at a wider range of sites, including bundling inspection and repair together, and will explore whether operators could be accredited to robustly manage their own vehicle safety

Agreed that the change be implemented from 1 July 2014 or earlier subject to appropriate implementation steps being completed.2

1 CAB Min (13) 1/17 p 2. Note this includes the benefits of variable CoF inspection frequency as well as enabling a wider

range of sites and the bundling of inspection and repair. 2 Ibid.


Scope 1.8 This paper focuses on the Transport Agency’s proposals for approving and overseeing CoF

providers to enable inspections to take place in a wider range of sites, including the bundling of inspection and repair.

1.9 The paper does not address the Transport Agency’s proposed approach to the accreditation of

vehicle operators or the introduction of CoF variable frequency. The Transport Agency proposes designing an accreditation framework for trialling with selected vehicle operators by July 2014 as part of its evaluation of the concept. Proposals for giving operational effect to CoF variable frequency are being developed separately.

1.10 The project team’s approach to the design and implementation of the regulatory settings for the

CoF service delivery system was based on the following scope parameters and assumptions:

In Scope:

That the policy intent and anticipated benefits can be achieved through changes to the Transport Agency’s operational policies and procedures, and associated changes to its processes and systems

That the capability and capacity implications of these changes for the Transport Agency will be identified and addressed (including establishment and ongoing business-as-usual costs)

That the project team should also identify related business process improvements that can reduce overall CoF system and Transport Agency administrative costs

That implementation considerations will be identified and addressed, including the required changes to the gazetted notice for the removal of pink and green stickers

That further economic modelling will be undertaken to refine the assessment of the costs and benefits of the proposed regulatory changes

That the links and dependencies between the proposed CoF system changes and other parts of the wider land transport regulatory system will be identified.

Out of Scope:

That the policy intent and anticipated benefits can be achieved without changing the Land Transport Rule: Vehicle Standards Compliance 2002 (VSC Rule)

That no changes will be made to the CoF B inspection test and the CoF A, CoF B and WoF categories of inspection

That changes to the Operator Rating System (ORS) are out of scope

That changes to CoF system enforcement arrangements administered by New Zealand Police are out of scope

That changes to the criteria for issuing pink and green stickers are out of scope. 1.11 As the assessment of proposed changes to the regulatory settings for the CoF system

progressed, it became apparent to the project team that the successful implementation of the proposed changes required a further consideration of the influence of the ORS. In addition, a number of the proposed regulatory changes do have consequences for other parts of the land transport safety management system. We have flagged these issues and our recommended approaches to them in this report.


Approach

Principles 1.12 The proposed CoF service delivery regulatory settings and implementation strategy:

Legislative Alignment: Take account of, and comply with, relevant legislation, including the Land Transport Act 1998 and the VSC Rule

Better Regulation: Reflect best practice regulatory principles and are consistent with the Government’s Regulatory Policy Statement

Alignment with VLR Policy Intent: Have been developed in accord with the VLR programme’s goals and objectives and the policy parameters and intent established in the VLR Cabinet paper – Better Vehicle Inspection and Licensing

Alignment with the Transport Agency’s Strategic Priorities: Are consistent with, and give effect to, the Transport Agency’s strategic priorities, including its commitment to being a world-class regulator that makes ‘smart choices easy’ while maximising the return for New Zealand

Evidence-Based Analysis: Have been informed wherever possible by quantitative and qualitative evidence-based analysis. Assumptions made as part of the economic modelling and options’ development and assessment process have been made explicit

Inclusive, Open Process: Have been underpinned by a development process that is inclusive and informed by feedback from key internal and external stakeholders.

Process 1.13 The development process was framed by the WoF/CoF project plan and associated CoF work-

plan, which established the goals and objectives, key deliverables, scope parameters, implementation milestones, and governance review and approval arrangements.

1.14 The CoF project team:

Completed a needs analysis of the current CoF system and established a problem definition statement drawing on the VLR Cabinet paper, the Regulatory Impact Statement, a Cost Benefit Analysis completed in early 2013 and the associated policy work completed in 2012

Established a framework for assessing regulatory options that took account of the problem definition and included: o A set of future-state guiding principles o A regulatory model that incorporated goals and objectives, identified key regulatory

features, enabled the identification of the implications for key system stakeholders and took account of the tension points between both system stakeholders and the desired system outcomes

o Assessment criteria

Identified and assessed a range of regulatory options for each feature of the model

Identified and addressed a number of implementation considerations arising from the proposed regulatory settings, including their implications for the Transport Agency

Commissioned the New Zealand Institute of Economic Research (NZIER) to complete market research on potential entrants to both the CoF A and CoF B markets to inform the economic appraisal of the proposed regulatory settings and the Transport Agency’s implementation strategy development

Commissioned NZIER to update its Cost Benefit Analysis to assess the economic impacts of the proposed regulatory changes on both the CoF A and CoF B markets


Developed an implementation strategy and associated project implementation plans that included an assessment of establishment costs and ongoing business-as-usual costs for overseeing the CoF service delivery system.

1.15 The project team engaged with three external Reference Groups – Customer, Vehicle Service

and Repair, and Current Inspection Service Provider – during the development process. The Reference Group membership details are included in Appendix A. In three rounds of workshops, the Reference Groups:

Provided feedback on the initial needs analysis, proposed regulatory model and approach to options’ assessment

Completed an initial options’ analysis focused on key features of the regulatory model

Provided feedback on the proposed regulatory model and implementation strategy principles and approach.

1.16 The Reference Groups provided valuable input into the development process that was carefully

considered by the project team at each stage of the process.


2 NEEDS ANALYSIS

The Current CoF System

Legislative Framework 2.1 The Land Transport Act 1998 and the VSC Rule establish the broad objectives and parameters of

the CoF system. In essence the legislation aims to ensure that commercial vehicles are safe and operated in compliance with rules.

2.2 The Land Transport Act 1998 sets out the primary responsibilities of participants in the land

transport system, including that vehicles are to be safe and operated in compliance with rules. Section 6 of the Act concerns the safe operation of vehicles. This requires that:

A person may not operate an unsafe motor vehicle

Vehicles must be safe and operated in compliance with rules

It is illegal to drive a vehicle if it does not meet the requirements under the rules, and if it does not display evidence of vehicle inspection (e.g. a current CoF label)

Rules are allowed to be made that provide for the periodic or other examinations of motor vehicles and the issue of evidence of vehicle inspections and certificates of loading.

2.3 In addition, section 30A of the Act requires that a holder of a transport service licence must

ensure that every vehicle to be used in connection with the service is maintained in a fit and proper condition and that the requirements of any Act, regulation or rule made for this purpose are met.

2.4 VSC Rule: The VSC Rule is a single rule to cover a vehicle’s inspection and certification

processes throughout its on-road life. The VSC Rule provides for a number of things including:

entry inspection requirements3

in-service inspection requirements4

repairs and modification of a vehicle5

the appointment of vehicle inspectors

fit and proper person criteria

suspension and revocation of appointments

period of, evidence of and revocation of vehicle inspection.

2.5 Vehicles subject to CoF inspections are usually inspected every six months. The VSC Rule also allows the Transport Agency the discretion to place an operator on a different inspection period of three to nine months. An amendment extending this variable period from three to 12 months comes into force on 1 July 2014. The Transport Agency is developing a process for applying variable frequency to CoF inspections to incentivise good operator practice.

The CoF System Value Chain Purpose 2.6 The CoF system aims to ensure that commercial vehicles are operated within minimum safety

and environmental roadworthiness standards. It has a number of related subsidiary roles, including:

3 Now in section 6 of the Compliance Rule 2002

4 Now in section 7 of the Compliance Rule 2002

5 A repair must comply with Land Transport Rule: Vehicle Repair 1998 (the Repair Rule) that requires the vehicle,

system part or component to be restored to within ‘safe tolerance’ of its original state. A modification that affects safety must be inspected and certified in terms of the Low Volume Vehicle Code for light vehicles or in terms of the Heavy Vehicle Specialist Certification VIRM for vehicles over 3500kgs.

http://www.legislation.govt.nz/act/public/1998/0110/latest/link.aspx?id=DLM434510

http://www.nzta.govt.nz/vehicle/warrants-certifications/getting-cof.html#label


Providing public confidence that vehicles are safe

Providing data for road user charges and ORS regimes and road safety research

By default, providing a benchmark for exiting vehicles from the fleet when repairs to the required standard become uneconomic

Providing a minimum level of consumer protection at the time of sale. Operational Overview

2.7 In accord with the legislative requirements, heavy vehicles and light vehicles providing

commercial transport services are inspected for CoFs every six months to make sure they meet

safety standards. Taxis, rental vehicles and other light commercial vehicles get CoF As, which

are largely equivalent to WoFs. Heavy vehicles (which are greater than 3.5 tonnes in weight) are

subject to CoF Bs, which involve more comprehensive inspections than apply to vehicles that

require WoFs.

Customer Service 2.8 From a customer (vehicle owner or operator) perspective, the CoF certification process is part of

a broader commercial vehicle safety management system. To obtain and maintain a CoF certificate an owner needs to have their vehicle(s):

Maintained: Depending on the type of vehicle, this usually involves an ongoing service and maintenance programme of some form. Some vehicle fleet operators may undertake their own servicing and maintenance, while others outsource this requirement. Since the introduction of the ORS many vehicle operators have chosen to have ‘pre-CoF’ inspections undertaken as part of their maintenance regimes prior to undergoing formal inspections

Inspected: Vehicles are required to undergo CoF inspections at independent vehicle inspection organisations approved by the Transport Agency. These inspections are undertaken in accord with the standards and requirements specified in the Vehicle Inspection Requirements Manual (VIRM)

Repaired: In the event that a vehicle does not meet the requirements specified in the VIRM, the vehicle operator is obliged to take the vehicle to a vehicle maintenance and repair provider to have it repaired to the prescribed standard

Re-inspected and Certified: Following any necessary repair work the vehicle operator must return the vehicle to the inspecting organisation to have their vehicle re-inspected. Provided it meets the prescribed inspection standards, a CoF will be issued.


System Support 2.9 Those elements of the commercial vehicle safety management system ‘value chain’ regulated by

the Transport Agency are underpinned by a number of features:

Regulatory Policies and Procedures: The Transport Agency’s safety standards and associated policies and procedures are set out in the VIRM, its Standard Operating Procedures and Technical Bulletins, and are reflected in documents such as the Deeds and Notices of Appointment that apply to current providers

Systems: The Transport Agency’s Landata system is used to capture and manage all CoF inspection results. Inspectors and inspecting organisations are required to enter specified inspection data into the system and are able to obtain information from it for the purposes of conducting vehicle inspections. Landata also includes details on inspectors, sites and inspecting organisations. The Certificates Database records the inspection group approvals for inspectors, sites and inspection organisations along with inspector appointment expiry dates

Appointments: The Transport Agency appoints inspection organisations and inspectors in accord with requirements specified in the VIRM. The VIRM also specifies inspection site and equipment requirements that inspection organisations must meet as a condition of their appointment. As a condition of appointment inspecting organisations must establish quality management systems in accordance with the requirements specified in the Transport Agency’s Performance Review System (PRS)

Audits: The Transport Agency monitors and reviews the performance of vehicle inspectors, or inspecting organisations, including the performance of inspection and certification activities at individual sites. Inspectors or inspecting organisations must bear the costs of the monitoring and review of their performance in accordance with any prescribed fees. The PRS enables the Agency to review the performance of certifiers and either reward good performance or impose penalties and sanctions for poor performance, including the withdrawal of authorisations to undertake inspections

Enforcement: Heavy and transport service vehicles are subject to on-road enforcement.

This includes CoF label checks by New Zealand Police and local authorities, and inspections performed by the Commercial Vehicle Inspection Unit (CVIU) of New Zealand Police with support from the Transport Agency’s Transport Officers.

2.10 The overall ‘value chain’ is depicted in the following diagram. Further details on current-state

regulatory settings relating to the appointment of inspecting organisations and inspectors, the approval of sites, the Transport Agency’s audit requirements and the enforcement system are included in Appendix B.


2

CoF System Value Chain

2

The CoF Market

2.11 The CoF market can be viewed as a dynamic system comprising customers, current providers, potential providers and substitutes. The levels of competition and competitive intensity within the market depend on the relationships between these customers, providers and potential providers, the availability of substitutes and the impacts of broader political, economic, social and technological trends.

2.12 We have used this model – depicted in the following diagram – to consider the operation of the current CoF market and will also use it to help frame our consideration of the market’s future operation.6

3

CoF Market Analysis Model

3

6 Adapted from M E Porter, Competitive Strategy, Free Press, 1980, p4.


Drivers & Influencers

2.13 The CoF market is influenced by a range of political, economic, social and technological factors.

Political 2.14 The current market operates in accord with the broad objectives and parameters established by

the current legislation – the Land Transport Act 1998 and the VSC Rule. The future market will need to continue to operate within these parameters as it is not envisaged that the legislation will change.

2.15 The Government’s micro-economic reform agenda reflects its interest in reducing regulatory

compliance costs as a means of enhancing economic productivity. This interest is a key driver of the current VLR process and will have a significant impact on the current CoF market’s operation. Economic

2.16 The demand for light commercial vehicle service passenger vehicles is well established and might be expected to grow incrementally in line with the projected growth in New Zealand’s economy and population.

2.17 The demand for freight services is predicted to increase significantly in the next 20 years. This is

likely to lead to both an increase in commercial vehicle numbers and a continuing trend towards larger, heavier transport vehicles.7

Social

2.18 There is a growing awareness of, and concern with, vehicle safety issues among key stakeholder groups, including the general public and vehicle operators and their customers.

2.19 The industry as a whole has an interest in promoting good safety systems and minimising the

reputational risks associated with poor safety. Vehicle operators’ concern with the safe operation of their vehicles is driven in part by commercial concerns related to liability risks and the need to respond to both customer and insurance company requirements as well as meet Government regulatory requirements. From a vehicle operator’s perspective, CoF certification is one of a number of requirements that have resulted in a greater focus on safety standards in the past 20 years.8 Technological

2.20 Innovation in vehicle design and construction and related service support equipment and systems continues to take place at a rapid rate as new technology is employed. Technological innovation is having a significant impact on vehicle diagnostic, maintenance and repair systems and vehicle reliability. It also affects the currency of prescribed CoF safety standards and the related inspection capabilities required to determine whether those standards are being met.

2.21 Emerging intelligent transport systems are also expected to offer new ways of achieving

compliance and effecting enforcement. These developments provide the opportunity for vehicle compliance to become more automated in the next 10-20 years.9

Customers Heavy Commercial Vehicles

2.22 The road freight sector comprises more than 150,000 vehicles and has an estimated annual

turnover of $6 billion.10 The sector is diverse and ranges from long-haulage freight operators that

7 Vehicle Licensing Reform, Certificate of Fitness Policy Workstream Report, 19 April 2013, draft p33.

8 CoF Customer Reference Group feedback.

9 Ibid. p33.

10 Source: Road Transport Forum


operate trucks nearly 24/7 to situations where vehicles have very limited seasonal use by, for

example, farmers.

2.23 This diversity is reflected in vehicle usage, with a small proportion of the trucks doing most of the

mileage on roads. This is shown in Figure 1, with 10% of the fleet doing half of the mileage, and

half the fleet doing 10% of the mileage. This diversity also implies a broad spectrum of vehicle

servicing needs and frequencies.

The ‘50:10 rule’: share of fleet by share of fleet travel using 2010 data

Light Commercial Vehicles

2.24 The light commercial vehicle sector comprises more than 55,000 vehicles. Light vehicles

operated in transport services, which require CoF A inspections, include:

Light rental vehicles (82%)

Light passenger service vehicles, including taxis, shuttles, private hire vehicles and light buses (18%).

2.25 Light Rental Vehicles: 94% of light rental vehicles are owned by companies, with the remaining 6% owned by individuals.

2.26 Light Passenger Service Vehicles: More than 7,000 taxis are registered in New Zealand, representing around 13% of the total CoF A market. 81% are owned by individuals, with the remaining 19% owned by companies. There are currently more than 600 shuttle vehicles (or large taxis) registered in New Zealand, comprising 1% of the CoF A market, with 53% owned by individuals and 47% by companies. Light buses account for 4% of the CoF A market, with 57% owned by companies and 43% by individuals.


Inspections

2.27 Table 1 shows that of the total CoF fleet of 208,000 vehicles in 2012/ 13, 153,000 were heavy

vehicles and 55,000 were light vehicles. These vehicles were subject to a total of 454,000

inspections, including rechecks.

Table 1 Number of vehicles and CoF inspections July 2012-June 2013

July 2012 – June 2013 CoF A CoF B Total

Unique vehicles 55,000 153,000 208,000

Initial inspections 84,000 282,000 366,000

Total inspections (incl. rechecks) 98,000 356,000 454,000

1st time fails 14,000 79,000 93,000

1st time fail rate % 17% 28% Note: Rounded to the nearest thousand.

Current Providers 2.28 Providers: The Transport Agency has appointed three Transport Service Delivery Agents

(TSDAs) to provide CoF A and B inspection services. Drivesure Vehicle Testing (Drivesure) was appointed by the Transport Agency to provide CoF A inspections in January 2013.

2.29 Distribution: Appendix C depicts the distribution of sites and ‘off-sites’ through which the TSDAs

deliver CoF inspection services. The distribution of sites and off-sites aims to achieve the Transport Agency’s business objective of maintaining appropriate national coverage and the principle that no vehicle operator should have to travel more than 30 minutes (or more than 40 kilometres) to reach an inspection site. The maps also highlight that competition between the three TSDAs is limited to New Zealand’s main metropolitan and some provincial centres.

2.30 Market Share: Vehicle Testing New Zealand (VTNZ) has the dominant market share, with 62% of

the CoF A market and 86% of the CoF B market. Vehicle Inspection New Zealand (VINZ) has 11% of the CoF A market and 7% of the CoF B market. The New Zealand Automobile Association (AA) has 7% of the CoF A and 4% of the CoF B market. Drivesure, which entered the market in January 2013, accounted for 0.02% in the 2012/2013 year.

Table 2 Number of sites and inspections for CoF organisations, July 2012-June 2013

CoF Type

AA Drivesure VINZ VTNZ

Sites Volume Mkt

Share Sites Volume

Mkt Share

Sites Volume Mkt

Share Sites Volume

Mkt Share

CoF A 10 7,000 7% 1 24 0.02% 11 30,000 31% 80 61,000 62%

CoF B 2 14,000 4% 0 0 0% 7 35,000 10% 63 306,000 86%

Total 10 21,000 5% 1 24 0.01% 11 65,000 14% 83 367,000 81% Figures rounded to the nearest thousand (and as such they may not equal those in Table 1) and they include rechecks.


2.31 Price: The prices TSDAs charge for CoF services are not regulated and vary by provider and the

characteristics of the vehicles being inspected. CoF inspection prices are estimated to average $150. An administration fee of $2.13 (excluding GST) is included in the price of each CoF inspection. This is used by the Transport Agency to fund the cost of the CoF label and associated systems. Around $36 million each year is paid in CoF inspection fees.11 This price does, not however, capture the full cost of CoFs to vehicle operators. It is estimated that in addition to the price of inspection, $30 million in time is spent on getting CoFs.12

11

VLR Cabinet Paper – Funding Changes to the WoF & CoF System. 12

See VLR – Regulatory Impact Statement: Warrant of Fitness and Certificate of Fitness. Most heavy and transport service vehicle operators (or their drivers, mechanics or service agents) must take their vehicles to

TSDA testing stations, where the time taken often involves queuing as well as the inspections themselves. If an inspection is

failed, the vehicle must be repaired before returning for a re-inspection. This imposes significant costs in terms of fuel, vehicle

wear and tear, road user charges, non-earning time for vehicles and drivers and, often, the cost of a replacement vehicle and

driver to continue the regular income-producing service. In fact, the high cost of unscheduled re-inspections (and the effects

of failures on operator ratings) means that some trucking operators also pay for pre-CoF inspections to ensure a pass.


Potential Providers

2.32 There is a range of potential providers of both CoF A and CoF B services that are prevented from entering the market.

2.33 In the CoF A market the potential providers include existing light-vehicle service and repair organisations that currently deliver WoF services. In the CoF B market the potential providers include heavy-vehicle service and repair organisations.

Barriers to Entry

2.34 There are significant barriers to entry faced by these potential providers. Some of these barriers also suppress competition between the current providers.

2.35 Prescriptive Regulation of Inspection Organisations: Until recently the Transport Agency – through its Business Model – only enabled the three TSDAs to deliver CoF services. More recently, in 2013, the Transport Agency approved Drivesure as a provider of CoF A inspection services. The Transport Agency requires inspections to be undertaken by organisations that are not involved in the repair of vehicles. This has precluded the entry of vehicle service and repair organisations to the inspection market.

2.36 Site and Equipment Requirements: The Transport Agency’s prescriptive standards for inspection

premises and equipment act as a barrier to entry. Many of these standards relate to aspects unrelated to the effectiveness of a given inspection, such as minimum dimensions for the building, driveways, inspection pits and turning circles. Current prescriptive standards for inspection premises and equipment cause undue costs to existing inspection organisations that are passed on, create a barrier to entry for potential providers, and suppress innovation.13 Moreover, the Transport Agency limits competition between organisations on a site type basis:

Off-Sites and Island Sites: The provision of CoF services at off-sites and island sites is restricted to VTNZ only

Main Testing Stations: While there are no specific restrictions on the three organisations opening additional main testing stations, the Transport Agency reserves the right of approval “in order to manage coverage issues”

Urban Bus Sites and Specialist Sites: These sites are provided by vehicle operators or their service agents and are serviced by TSDAs chosen by the operators, but the operators need to provide the Transport Agency with ‘business cases’ to justify moves between TSDAs.

2.37 Inspector Supply and Training: Access to qualified staff is a potential barrier to entry. There is currently a skill shortage (CoF B inspectors are on the long-term skill shortage list) and training to meet the Transport Agency’s assessment requirements for CoF inspectors only occurs within the two largest inspection providers.14

13

Some truck service centres are moving to technologies that do not meet current mandatory requirements for CoF sites. Moreover, the move to High Productivity Motor Vehicles allows for longer trucks that were not anticipated when the current requirements were determined, which means the current required dimensions for sites are outdated. 14

VLR – Regulatory Impact Statement, Warrant of Fitness and Certificate of Fitness, 15 January 2013, p16.


Substitutes

2.38 Under the current delivery model there are no viable substitutes for vehicle operators. They are required to obtain CoFs every six months from inspecting organisations appointed by the Transport Agency.15

Competitive Intensity

2.39 The Transport Agency’s assessment is that there is a relatively low level of competitive intensity in the current CoF system:

The Transport Agency’s regulatory settings require the compulsory purchase of an undifferentiated inspection product for which there is no substitute16

There are only three providers of CoF B services and four providers of CoF A services, of which one has a dominant market share

There is no choice of inspection service provider outside the main metropolitan centres and some provincial centres

There are high barriers limiting new entrants and competition between current providers. Problem definition

2.40 The current system appears to be reasonably effective in achieving its core purpose of ensuring that light commercial vehicles and heavy vehicles meet the safety standards prescribed in the VIRM. The assessment in the early phase of the VLR programme process suggests, however, that there is scope for the system to be more responsive to customer (vehicle owner and operator) needs and so enhance vehicle fleet productivity.

2.41 Vehicle Productivity and Compliance Costs Arising from the Separation of Maintenance, Inspection and Repair Services: Vehicle operators face the productivity losses and significant compliance costs that arise from the separation of vehicle service, inspection, repair and re-inspection/certification functions. This occurs as a result of the Transport Agency’s requirement for inspection organisations not to be involved in vehicle repair.

2.42 Limited Incentives for Inspection Organisations to Innovate and Respond to Customer Needs: The incentives for providers to offer services in a manner that is responsive to customer needs (without compromising their commitment to ensuring that vehicle safety standards are met) are diminished by:

The ‘captive’ customer market required to purchase a regulatory service

The limited choice of inspection providers

The dominant position of one provider in the CoF B market

The barriers to limiting new entrants arising from the Transport Agency’s appointment requirements, including prescriptive site approval requirements

The lack of viable substitutes (such as accreditation).

2.43 WoF Reforms Affect TSDA Service Model: The WoF reforms will result in a reduction in the size

of the WoF inspection market, which may reduce the commercial viability of current TSDA

inspection sites. This may reduce the geographical coverage of CoF sites and affect prices and

customer service if TSDAs do not make adjustments to their current business models. This in

turn may increase the compliance costs to business because of reduced accessibility to

inspection services.

15

A vehicle operator accreditation programme would provide a ‘substitute’ for vehicle operators.


3 FRAMING THE FUTURE SERVICE DELIVERY REGULATORY MODEL

Future-State Guiding Principles

3.1 To give effect to the policy intent summarised in the Cabinet paper, Better Vehicle Inspection and Licensing, a set of future-state guiding principles has been developed to frame the development of changes to the regulatory settings for the CoF service delivery system.

3.2 The proposed regulatory settings will:

Consistent with the VSC Rule: Be developed in accord with the requirements of the VSC Rule

System Design Objectives: Aim to maintain or improve vehicle safety outcomes, while optimising the balance between customer responsiveness (including vehicle fleet productivity) and regulatory risks and costs

Best-Practice Regulation: Reflect best-practice regulatory principles that are also consistent with the Government’s Regulatory Policy Statement

Market Delivery: Enable market innovation that is consistent with the achievement of the system design objectives

System Integrity: Ensure that the CoF service delivery system delivers inspection outcomes consistent with the Transport Agency’s standards by establishing appropriate quality assurance standards underpinned by effective monitoring and audit arrangements

Service Accessibility: Enable the development of service delivery arrangements that are accessible, fit for purpose and responsive to customer needs

Enforcement: Ensure that appropriate enforcement arrangements underpin compliance with regulatory requirements.

3.3 The following diagram counterpoints those future-state principles with the current-state position.

4

CoF Service Delivery SystemDesign Principles

Current State Future State

Vehicle Standards Compliance Rule Vehicle Standards Compliance Rule

System Design Objectives• Safety

System Design Objectives• Safety & optimising productivity, customer

responsiveness, regulatory risk & cost

Prescriptive Regulation Best Practise Regulation

Provider franchise– Limited competition, no substitutes

Market Delivery• Enabling market innovation to meet

system objectives

Independence• Inspection separated from service & repair

underpinned by PRS to achieve integrity

Integrity• Flexible delivery that meets safety

standards underpinned by audit

Site Location & Standards• NZTA site approval • Site specs with variation

Service Accessibility• Service fit for purpose & responsive to

vehicle operator (customer) needs

Enforcement• Police & CVIU

Enforcement• Police & CVIU

4


Regulatory Settings, the Provider Market & System Outcomes 3.4 There is a dynamic relationship between regulatory settings, service provision and system

outcomes.

3.5 The project team’s approach to modifying the service delivery system has been guided by the future-state principles and its assessment of system risks. It has focused on the changes required to the regulatory settings that achieve improved system outcomes. Proposed changes to those regulatory settings will influence the operation of the provider market that delivers inspection services.

3.6 The project team has considered the likely impacts of changes on the provider market. It recognises that the Transport Agency needs to monitor and evaluate the actual impacts of regulatory change on both the market and system outcomes and make adjustments to address any unintended consequences and the changing nature of the market as it develops.

3.7 The following diagram depicts this approach:

8

Service Delivery Model Development

8

Optimising System Performance: Managing the Tension Points

3.8 When considering the mix of regulatory settings that will optimise system performance, the project team has taken account of the tension points and potential for trade-offs between safety, customer benefits and regulatory costs.

3.9 The project team have also been conscious of the different commercial drivers that influence customer and provider behaviour, as well as the regulatory role the Transport Agency performs in the vehicle inspection system. Each of these stakeholders has distinct interests in the vehicle inspection system. Again, the project team have been conscious that in a commercial setting the differing interests of customers and inspection providers and the relative ‘balance of power’ between these two groups can affect inspection service outcomes.

3.10 The following figure depicts these relationships, which have been taken into account during the assessment of the regulatory options.


6

Optimising CoF system performance:Managing the tension points

6

3.11 The project team has proposed regulatory settings that are designed to maintain or improve system outcomes while providing net benefits to customers (vehicle operators). Some of the settings will reduce regulatory barriers and costs for providers, with marked benefits for customers through improvements in the efficiency and effectiveness of service provision. Some regulatory arrangements are designed to mitigate potential risks to safety and/or overall system performance. In some cases these settings will involve additional regulatory costs to either providers or the Transport Agency, which will ultimately have some impact on customer costs and benefits. If the regulatory cost to providers is too high, their assessment of the commercial benefits and risks could affect their participation in the inspection market, which could in turn adversely affect some of the benefits derived by customers.

3.12 The project team considers that the regulatory settings proposed in this paper strike the right balance.17 The Transport Agency will need to monitor actual (as opposed to anticipated) provider and customer responses to those settings. It does, of course, have the ability to refine settings to address any unintended consequences and changes in the system’s overall risk profile as the market develops, if necessary.

17

Appendix D includes a table outlining the safety, customer benefit and regulatory cost criteria used to assess the regulatory

feature options. It also includes indicative performance indicators that, when further developed, could provide the basis for the

evaluation of the service delivery model.


4 THE PROPOSED CoF SERVICE DELIVERY REGULATORY MODEL

Goals & Objectives

4.1 The Transport Agency’s regulatory settings will enable the competitive provision of CoF services that ensure vehicle safety outcomes are maintained or improved while optimising the balance between:

Customer responsiveness (including vehicle fleet productivity)

Regulatory risks and costs.

4.2 The delivery model will be sufficiently flexible to allow for inspections to take place at a wider range of sites, and the bundling of inspection and repair.

Regulatory Parameters

4.3 The following figure outlines the key features of the proposed CoF inspection service delivery regulatory model:

9

CoF Service Regulatory Model

9


Appointment of Inspecting Organisations 4.4 The Transport Agency will consider applications from organisations with financial and

professional interests in modifying or repairing vehicles. It will not restrict the ability of inspecting organisations to be involved in the repair of vehicles. As a condition of appointment, inspection organisations will not be permitted to inspect vehicles in which they have financial interests.18

4.5 The Transport Agency will not give any weight to the number of inspecting organisations already appointed and offering services in a particular geographical area when considering applications for appointment. It will require inspecting organisations to demonstrate that they have effective, auditable quality assurance systems in place.

4.6 The Transport Agency will maintain its other appointment requirements at current settings. The

Transport Agency will not make any changes to the current CoF A and CoF B classifications it applies when considering applications from inspecting organisations.19

Approval of Inspection Sites

4.7 As a condition of appointment, inspecting organisations will need to provide inspection services from sites that the Transport Agency has approved as meeting its requirements, at least during the transition phase of the new service delivery system.

4.8 The Transport Agency will enable all inspecting organisations to deliver inspection services from

a wider range of sites, including sites provided by, for example, vehicle service and repair organisations and vehicle operators as long as they meet the Agency’s site requirements.

4.9 Where an inspecting organisation has approval to provide inspection services at a particular vehicle operator’s facility, there is no requirement for the organisation to provide inspection services to other vehicle operators’ vehicles from that site (although the inspecting organisation would not be precluded from agreeing to such an arrangement with the site owner). With regard to the provision of services from other sites (such as those provided by vehicle service and repair organisations), the Transport Agency anticipates that normal commercial arrangements will apply. The Transport Agency does not anticipate a need to mandate public access requirements or a requirement to service any or all vehicle types for which the inspecting organisations hold inspection authorities.

4.10 Applications from inspecting organisations to undertake inspections from particular sites will not be adversely affected by existing site provision arrangements in the relevant geographical areas. The Transport Agency anticipates enabling only one inspection organisation to operate from a site, unless there are exceptional circumstances relating to customer access and coverage in rural/low-volume areas that could be best met by enabling two or more inspecting organisations to operate from the same site at different times.

4.11 Inspecting organisations will remain accountable for ensuring that the sites and related equipment they use continue to meet the Transport Agency’s requirements as a condition of appointment (as occurs with the current main sites, off-sites and specialist sites).

18

The intent is to preclude vehicle operators (including companies that own and lease out vehicles) from inspecting their own vehicles. The

Transport Agency will need to carefully define ‘financial interest’ and how it will apply this definition when considering applications given the commercial structures and ownership arrangements within the road transport sector. This requirement is intended to help mitigate risks arising from the conflict of interest a vehicle owner would have in inspecting their own vehicle and the risks of under-servicing that arise from this conflict. While it prevents vehicle operators inspecting their own vehicles (unless the Agency decides to establish an accreditation scheme following its trial of the concept), it would not necessarily prevent a vehicle operator providing an inspection site or a full inspection service for other vehicles. An implication of this approach is that vehicles owned by inspecting organisations for inspection purposes would need to be inspected by other organisations unless exemptions were established for these particular types of vehicle. Concessions may be provided to inspecting organisations for the certification of vehicles in which they have financial interests for the purposes of conducting their inspection businesses. 19

This means that an organisation approved to deliver CoF A inspection services that wanted to inspect a particular vehicle type covered by CoF B would need to meet the approval requirements for CoF B before it could undertake inspections of that particular vehicle type.


4.12 The Transport Agency will review and remove prescriptive site requirements that do not have a bearing on the integrity of the inspection process but increase the cost of developing new sites or limit the eligibility of existing facilities to be approved as inspection sites. Key prescriptive elements that will be reviewed include but are not limited to:

Dedicated lanes

Turning circles

Inspection area lengths

Door heights

Site branding.

4.13 The Transport Agency will establish outcome-based principles and standards that will take the place of the remaining site requirements. Guidelines will also be developed for applying the principles and standards, with worked examples addressing anticipated application issues including applications in remote and specialist sites. No restrictions will be placed on sites meeting these principles being in vehicle service and repair facilities or vehicle owner or operator facilities. The inspection organisation conditions of appointment will need to cover the inspection services to be offered at each site and any agreed limits on public access to inspection services (e.g. sites provided by vehicle operators).

4.14 In the medium term the Transport Agency will give consideration to removing the requirement for

site approval. It would instead maintain its outcome-based guidelines on the conditions under which inspections take place and place the onus on inspecting organisations and inspectors to ensure that inspections were undertaken in an environment that met those requirements. A consideration of this further liberalisation of the regulatory requirements will only occur:

Once the enhanced quality assurance arrangements for oversight of the service delivery system are bedded down and working effectively

Once the Transport Agency’s evaluation of the service delivery system confirms that safety outcomes have been maintained or improved

Provided the Transport Agency is confident that inspecting organisations and inspectors have the capability to manage the additional discretion entailed

Provided cost-effective monitoring and risk management arrangements can be established. Occupational Regulation of Inspectors

4.15 The Transport Agency will continue to appoint inspectors. In making appointments the Transport Agency will continue to require each applicant to:

Hold a recognised qualification as an automotive technician and have three years’ relevant work experience; or

Have a longer period of relevant work experience; and

Demonstrate a comprehensive knowledge of the VIRM: In-service certification

Demonstrate a comprehensive knowledge of large passenger service vehicles and their requirements

Demonstrate a comprehensive knowledge of common vehicles

Meet the Transport Agency’s ‘fit and proper person’ requirements. 4.16 The Transport Agency will not consider an applicant’s involvement in the service and repair of

vehicles to be a conflict of interest that precludes them from appointment. It will not place any restrictions on an approved inspector’s role in terms of undertaking vehicle service, repair and inspection activities as a condition of appointment. Inspecting organisations will be able to determine what role or roles they wish their staff to perform, provided staff approved to undertake CoF inspections do so to the standards specified by the Transport Agency (the roles an inspector could perform range from a specialist, ‘inspection-only’ role to inspecting and certifying vehicles they have maintained or repaired). A condition of appointment will be that inspectors are not permitted to certify vehicles in which they have commercial or ownership interests.20

20

As a condition of appointment, inspectors need to be employed by inspecting organisations or be inspecting organisations in their own right.


4.17 The Transport Agency will, however, take steps to further develop the requirements that an inspector must meet as a condition of appointment as a further means of ensuring the quality of inspection outcomes in a more open service delivery environment. The areas it will address include:

Establishing a Code of Conduct that: o Provides an ethical and behavioural framework for inspectors o Outlines standards of integrity and conduct that apply to vehicle inspection services o Acknowledges the relationship with inspection organisations that are also bound by

the Code21

Updating the Transport Agency’s competency assessment (examination) tools to encompass technical and non-technical competencies, including giving effect to the principles contained within the Code of Conduct

Extending the professional practice requirements beyond undertaking one inspection per vehicle class in a given 12-month period

Reviewing the professional development requirements for remaining an inspector

Establishing a three-year term of appointment, renewable subject to satisfactory audit results and professional practice and professional development requirements being met

Reviewing the sanctions that the Transport Agency is able to apply for breaches of standards and its processes for the effective application of these sanctions.

4.18 Some of these requirements – such as the Code of Conduct, an update to the Transport Agency

competency assessment process and revisions to professional practice requirements – should be ready to introduce in tandem with other proposed regulatory changes in 2014; others (such as the ongoing professional development requirements) may take longer to finalise. If this is the case, the Transport Agency will communicate the broad nature of any anticipated further changes to occupational regulatory settings, and the anticipated timeframes for their introduction, when it introduces its other proposed changes.

4.19 In addition, the Transport Agency will work with the New Zealand Motor Industry Training

Organisation (MITO) and industry stakeholders to confirm the national competency standards for inspectors that can be included as a strand or strands within appropriate national qualifications and associated training programmes. While the completion of a national qualification would not be a requirement for existing inspectors or new inspectors appointed by the Transport Agency in the market’s early transition phase, it will provide a valid vocational training pathway for the next generation of inspectors and may also provide the basis for ongoing professional development for existing inspectors. The intent is to:

Reinforce inspection system quality assurance

Enable nationally consistent competency development

Enable the establishment of appropriate training programmes

Recognise vehicle inspection as a career path opportunity for automotive technicians. 4.20 The Transport Agency will also engage with the inspection industry to assess the costs and

benefits of a partnership within which the Agency would continue to establish the occupational regulatory requirements for inspectors in consultation with industry, but enable those requirements to be administered through a professional association. This broader partnership approach to the administration of occupational regulation does not need to be in place prior to enabling the proposed regulatory changes to the CoF service delivery system. If industry and the Transport Agency see value in such an approach, it could be further developed and progressed during the market’s transition phase.

CoF Business Process

4.21 The Transport Agency will require the distinct steps of CoF inspection, re-inspection and certification to be maintained by service providers (as currently occurs in the WoF delivery model)

21

The proposed Code builds on the current requirement for inspecting organisations to establish Codes of Ethics and provide services to the highest standard of business ethics and courtesy.


primarily as a quality assurance check. For each vehicle inspection, the inspecting organisation, the vehicle inspector and site identification must be recorded and reported to the Transport Agency. These requirements will be reflected in the VIRM and each inspecting organisation’s Notice of Appointment.

Audit Targeted to Risk

4.22 The Transport Agency will improve the efficiency and effectiveness of its audit system. The Transport Agency will develop its audit system to:

Encompass quality assurance systems and inspection processes as well as technical requirements

Target audits to risk

Ensure regular periodic audits of all inspectors

Undertake more targeted output inspections of vehicles by Transport Officers (e.g. more unannounced, targeted re-inspections)

Audit the quality assurance systems of large providers then sample check audit results (instead of auditing all sites, the focus would be on head office quality assurance systems and internal audits of a percentage of sites).

4.23 The Transport Agency will assess the most efficient means of delivering its revised audit services.

Monitoring & Evaluation 4.24 The Transport Agency will establish an effective CoF service delivery monitoring and evaluation

system that enables it to:

Monitor the changes in service provision and their implications for vehicle operators

Assess the performance of inspection organisations and inspectors

Respond operationally to mitigate any emerging risks

Assess the overall performance of the CoF inspection system, including the extent to which the anticipated benefits of the reform process have been realised

Make any necessary adjustments to regulatory settings to mitigate risks and optimise system performance.

4.25 This will require the Transport Agency to:

Identify the information it needs to monitor and evaluate the performance of the service delivery system and ensure that any information required from inspecting organisations is included as a condition within Notices of Appointment

Establish arrangements for monitoring changes in service outcomes, service provision, coverage and price

Establish and implement a cost-effective process and outcome evaluation strategy that takes account of the benefits and risks identified in the CoF Cost Benefit Analysis. We anticipate that the Agency will need to establish cohorts for each of the following groups: vehicle operators, repairers, inspectors and inspecting organisations, to inform both the process and outcome evaluations. Moreover, we anticipate a need to gather baseline information from the vehicle operator cohort before the regulatory changes occur, and twice more at agreed points following the introduction of the changes (indicatively at 18 months and three years post go-live).


Regulated Fees

4.26 The Transport Agency will amend the Land Transport (Certification and Other Fees)

Regulations1999 to establish a fee regime that:

Continues to meet Treasury and Office of the Auditor-General guidelines for charging fees for

public sector goods and services

Reflects current CoF legislation and incorporates any changes to the fee structure required to

accommodate the proposed CoF regulatory settings

Recovers the establishment and ongoing costs associated with regulating the CoF service

delivery system from those who use or benefit from the services

Represents value for money

Does not create undue barriers to market entry.22 4.27 The following table counterpoints these proposed (future-state) regulatory settings with the

current-state settings.

22

]The fees currently prescribed under the Land Transport (Certification and Other Fees) Regulations 1999 include:

Application for appointment as a certifying organisation: $816 for a CoF site and $498 for a WoF site

Application for appointment of an individual as a certifier: $67.20 for a CoF certifier

Fee for determining whether or not a person applying to be a certifier is a fit and proper person to be a certifier: $28.20

Fee for undertaking a planned review of a certifier or site where certification is carried out is: $889.50 for a CoF site

Fee for CoF certificate (sticker) $2.40.


10

CoF Service Delivery ModelRegulatory Settings

Current State Future State

Inspection Organisation• 4 Providers• Inspect Only

Inspection Organisation• Wider range of organisations• Able to inspect & repair• An inspector can be an inspecting organisation

Inspectors• Inspect only

Inspectors• Able to inspect & repair• Enhanced occupational regulation

Inspection Sites• Main sites owned or leased by inspecting

organisations• Specialist, island & off-sites limited to VTNZ• Prescriptive site requirements

Inspection Sites• Inspecting organisations able to provide services from

a wider range of approved sites• Outcome based site requirements• Requirements unrelated to inspection removed• Review approval requirement (medium term)

Business Process• Distinct steps of inspect, reinspect & certify

Business Process• Enables bundled inspection and repair service• Distinct steps of inspect, reinspect & certify required

Audit• Routine regular audit underpinned by PRS

Audit• Targeted risk based audit underpinned by quality

management systems requirements

Monitoring• Operational monitoring

Monitoring & Evaluation• Operational monitoring. Process & outcome evaluation

Regulated Fees• Not covering full costs

Regulated Fees• Structured for new regulatory model, recover full costs10


5 SYSTEM RISK MITIGATION

5.1 The anticipated risks and the key features of the Transport Agency’s regulatory model that are

designed to address them are set out in the following tables.

Risk: Variation in Inspection Standards: There is a risk of a greater variation in inspection standards affecting vehicle safety outcomes if not mitigated. This risk could arise from:

New entrants not being sufficiently familiar with the Transport Agency’s standards

Commercial pressure to ‘under-serve’

The establishment of ‘captive’ inspection organisations that depend on one or a small number of customers.

Likelihood: Medium Impact: Medium

Mitigation:

Inform and Educate: In the market preparation and transition phase the Transport Agency will play an active role in ensuring that potential entrants understand and can comply with the Agency’s requirements. Appointment Requirements: The Transport Agency’s appointment process will require inspecting organisations to demonstrate that they have effective, auditable quality assurance systems. The Transport Agency will also further develop the occupational requirements that inspectors need to meet as a further means of ensuring the quality of inspection outcomes.

Audit and Enforcement: The Transport Agency’s audit process will target risks and regular periodic reviews of inspector performance.23

Sanctions: The Transport Agency’s power to suspend or revoke inspector and inspecting organisation appointments when there is a failure to comply with conditions of appointment can be more readily exercised when there are alternative service providers available.

Risk: Market Discontinuities in Service Provision: There is a risk of discontinuities in service provision in the market’s transition phase as potential providers and current providers consider and respond to the opportunities and threats at different rates.


Mitigation:

Communication: The Transport Agency will ensure that current and potential providers and customers are aware of the proposed changes to the regulatory settings and have time to consider and assess the opportunities that the new settings present well in advance of changes coming into effect.

Transition Management: The Transport Agency will establish transition arrangements with current providers that enable the risks to service provision to be identified in advance of their occurring.

Monitoring: The Transport Agency will monitor changes in provision.

Information Provision: The Transport Agency will provide information on service provision arrangements to customers and potential entrants.

Intervention: The Transport Agency can consider intervention in the event that it determines that a discontinuity in service provision is not temporary and represents a significant market failure.

23

The Transport Agency’s systems enable it to identify inspection organisations that are serving only one or a small number of customers.


Risk: Reduced Coverage and/or Increased Prices: There is a risk that customers will have to travel further to access inspection services and/or pay more for those services.

Likelihood: Low-Medium Impact: Medium

Mitigation:

Regulatory Design: The Transport Agency is enabling a flexible delivery model that has lowered barriers to entry to mitigate the risks of coverage. Through the bundling of inspection and repair services, vehicle operators should be able to obtain net benefits from improved vehicle fleet productivity even if they have to travel longer distances or pay more for inspection services. The risk is further reduced by enabling a wider range of facilities to host inspection organisations and removing site requirements that are not required to ensure the integrity of the inspection process. This will reduce the capital costs associated with site provision for inspecting organisations and enable the wider provision of mobile inspection services.

Monitoring the Trade-Off between Coverage and Productivity Gains: The Transport Agency will monitor and assess the net benefits (or losses) to vehicle operators from any trade-off that occurs between distances travelled and the cost of inspections and overall vehicle fleet productivity. The Transport Agency will monitor what is being charged for CoF inspection services through sampling vehicle operators.

Transport Agency Intervention: The Transport Agency does not propose retaining a fixed coverage standard and it does not have the legal authority to regulate price. It does, however, have the capacity to intervene in the event of discontinuities in service provision during the transition and development phases for the new CoF inspection market. The nature of those interventions, if required, would vary in accord with circumstances. At the lower end of the spectrum involving temporary discontinuities, the Transport Agency may choose to make available information on service provision and prices to potential entrants and customers. In the event that the Transport Agency assesses there is a market failure that materially disadvantages customers, more active interventions could be considered.

Risk: Price Competition in Areas of High Demand: There is a risk that aggressive price competition in areas of high demand affects the integrity and sustainability of the market.

Likelihood: Medium Impact: Low-Medium

Mitigation:

Monitoring and Information Provision: The Transport Agency will monitor and may make available information on service provision and price. The Transport Agency will monitor what is being charged for CoF inspection services through sampling vehicle operators.

Intervention: The Transport Agency does not have the legal authority to regulate price. Where it assesses that there are potential risks to inspection outcomes arising from price competition or other industry practices, it can apply its audit and performance management arrangements. In cases where it determines that there have been breaches of the conditions of appointment, it can exercise performance management sanctions.


Risk: Cherry-Picking Affecting Coverage: There is a risk that inspecting organisations target particular customers or vehicle types, which compromises access to inspection services for other customers/vehicle types.


Mitigation:

Monitoring and Information Provision: The Transport Agency will monitor and may make available information on service provision.

Regulatory Design: The Transport Agency is enabling a flexible delivery model that has lowered barriers to entry to mitigate the risks of coverage. By enabling the bundling of inspection and repair services, vehicle operators should be able to obtain net benefits from improved vehicle fleet productivity even if they have to travel longer distances or pay more for inspection services. The design parameters do enable specialisation and lower the barriers to entry to the market. This flexibility should enable niche inspecting organisations to meet the needs of all customer groups.


6 SYSTEM OUTCOMES

Safety 6.1 Overall safety outcomes will be maintained through the Transport Agency’s quality assurance

requirements for inspecting organisations, maintaining and – over time – enhancing appointment and professional development requirements that apply to inspectors.

6.2 The Transport Agency’s enhanced and targeted audit requirements will also provide an important

quality assurance check on the delivery system that is intended to mitigate the risk of variations in inspection standards arising from an increased number of service providers. There is also greater scope for the Transport Agency to apply performance management sanctions in geographical areas where there are alternative service providers available.

Customer Benefits 6.3 The proposed combination of regulatory settings will enable a more responsive service to be

provided to customers, resulting in greater choice and reduced compliance costs for vehicle operators.

6.4 Vehicle operators who choose to access services from providers that offer bundled inspection

and repair services should be able to reduce vehicle downtime, thereby increasing vehicle productivity.

6.5 The risks of reduced access and increased price in rural/low-volume inspection areas will be

more than offset for many customers by the reduced downtime associated with being able to access bundled maintenance, inspection, repair and certification services. Enabling a wider range of organisations to enter the market also helps to mitigate the risks to service provision arising from threats to the commercial viability of current providers arising from the WoF variable frequency reforms.


Regulatory Costs Transport Agency 6.6 The VLR Cabinet paper and the associated Regulatory Impact Statement assumed an increase

in the Transport Agency’s costs associated with overseeing the CoF inspection market. The Transport Agency will incur additional costs in establishing the new regulatory settings. The Transport Agency is not, however, anticipating any significant increase in unit costs as a result of the regulatory changes. The total cost of administering the CoF system will increase as a result of the increased number of inspecting organisations, inspectors and inspection sites that it will approve and oversee. That increase will, however, be offset in part by efficiency gains from related business process improvements that will be introduced to support the CoF system reforms.

Providers 6.7 Overall regulatory costs associated with providing CoF inspection services will be reduced from

the current baseline. The costs associated with the proposed quality assurance and occupational regulatory requirements are offset by the flexibility and reduced costs associated with enabling the bundling of inspection and repair, and more flexibility in inspection site provision and around the use of labour.

Service Provider Implications 6.8 Potential Providers: The proposed regulatory settings will mean that a wider range of potential

service providers is eligible to enter the CoF provider market, including self-employed persons.24 The changes to site requirements should lower the barriers for an organisation to become a fully fledged inspecting organisation and enable the provision of mobile inspection services. For organisations that have suitable facilities but do not wish to invest in the development of full inspection capabilities, it provides an opportunity to establish partnership arrangements with inspecting organisations.

6.9 Current Providers: Current providers will be able to consider changes to their current business

models to respond to the changed regulatory settings. They could, for example, choose to remain specialist, ‘inspection-only’ providers or diversify their service offerings to include vehicle maintenance and repair services. They may choose to take advantage of the greater flexibility around site requirements to establish partnerships with service and repair organisations to provide ‘bundled’ inspection and repair services to customers, thus extending their distribution channels and market coverage. Increased competition poses a risk to the commercial viability of services in some areas. Current providers could choose to exit some or all of the markets in which they compete. As already noted, this could pose risks to coverage in lower-volume areas if current providers choose to exit. Alternatively it could result in current providers raising prices to ensure a commercial return on investment.

Cost Benefit Analysis Overview

6.10 NZIER’s updated economic analysis provides greater confidence in the likely net benefit

outcomes and confirms that the proposed approach will deliver net benefits within the range originally estimated in the VLR Cabinet paper.

6.11 NZIER has updated the Cost Benefit Analysis for CoF B, which was originally undertaken in late 2012 and informed the January 2013 Regulatory Impact Statement on WoFs and CoFs. It has also completed a new appraisal for CoF A.

24

Under the rule an individual can be appointed as an inspecting organisation. We have considered the implications of individuals and small organisations becoming inspecting organisations. Their entry would help to mitigate coverage risks, while the Transport Agency’s quality assurance and audit requirements will be used to ensure that inspection standards are maintained.


6.12 The net benefit from reforming the CoF B market in net present value (NPV) terms was previously estimated to be $160-$460 million (NPV over 30 years at an 8% discount rate). The net benefits are now estimated to be $330-$460 million, with a mid-point estimate of $390 million.

6.13 The net benefit from reforming the CoF A market in NPV terms is $25-$45 million, with a mid-

point estimate of $35 million over 30 years (assuming an 8% discount rate). 6.14 The analysis takes account of the Transport Agency’s proposed regulatory settings and improved

information obtained from NZIER’s market research, which is included as an annexe to this report.

6.15 The analysis has included revised estimates of the Transport Agency’s audit costs. NZIER has

still to factor in the Transport Agency’s final establishment cost and business-as-usual cost estimates. These are, however, unlikely to have any material impacts on the estimate of net benefits as they are anticipated to fall within the $5 million rounding error margin used in the economic model.


7 IMPLEMENTATION CONSIDERATIONS

Implementation Issues

7.1 There are a number of implementation issues that the Transport Agency will address during the market preparation, transition and development phases.

Pink and Green Sticker Removal

Issue The Land Transport (Ordering a Vehicle off the Road) Notice 1999 enables vehicles that do not comply with the provisions of the regulations or rules made under the Land Transport Act 1998 to be removed from the road. The notice affixed to a defective vehicle takes the form of a ‘pink’ or ‘green’ sticker. One of the requirements that must be met before a vehicle can be returned to the road is that it must be inspected by an inspector who is an employee of an authorised vehicle inspection agent that does not repair vehicles (other than to replace light bulbs and windscreen wiper blades) in the course of business. Because the Transport Agency will no longer require ‘inspection-only’ organisations, there is a risk that owners or operators of vehicles that have been issued with pink or green stickers will be unable to meet their obligations under the Land Transport (Ordering a Vehicle off the Road) Notice.

Desired Outcomes

Owners or operators of vehicles that have been issued with pink or green stickers are able to have their vehicles made compliant and the pink or green stickers removed by authorised inspectors.

Vehicle inspectors consistently apply the certification standards prescribed by the Transport Agency when inspecting vehicles.

Audit and enforcement arrangements manage any non-compliance.

Proposed Approach Further analysis will be undertaken to determine whether or not the proposed changes should be extended to the WoF market. Following this analysis the Land Transport (Ordering a Vehicle off the Road) Notice 1999 will be amended to enable a vehicle inspector who is an employee of an authorised inspection organisation to remove the notice. A Ministerial Notice will be prepared and progressed through the Ministry of Transport, following consultation with New Zealand Police and other agencies. The intention is to have the new notice gazetted and in force in advance of new inspection organisation Notices of Appointment coming into effect.


Inspector Supply

Issue A shortage of trained inspectors:

Acts as a barrier to entry for new entrants

Drives up the salaries paid by inspecting organisations for existing inspection staff, which in turns affects the price of inspections.

Desired Outcome

A ready supply of competent inspectors that matches the demand from inspecting organisations.

Proposed Approach Enabling automotive technicians currently qualified to work on CoF A and/or CoF B vehicles to undertake inspection work as an adjunct to their service and repair work will widen the group of potential inspectors.

The Transport Agency will work with industry groups and MITO to ensure that vehicle inspection is a recognised career choice that is reflected in career pathways, national qualifications and vocational training programmes.

Inspector Training Supply and Demand

Issue No training programmes are currently available for personnel wanting to meet the Transport Agency’s assessment requirements for appointment as CoF inspectors, apart from those offered by two of the four current inspection organisations. The unknown demand for inspector training creates uncertainty, lessening the likelihood that training providers will offer courses to personnel wanting to become inspectors during the transition period.

Desired Outcomes Upskilling and Conversion Training: Training programmes are readily available to meet the immediate demand from automotive technicians and WoF inspectors with prerequisite qualifications and experience who need to understand CoF vehicle inspection requirements specified in the VIRM and demonstrate competence in the application of those requirements.

Comprehensive National Standards Incorporating Vehicle Inspection Competency Requirements: National standards and training programmes are available that enable those seeking careers in the automotive industry to develop the competencies required to be vehicle inspectors.

Assessment The Transport Agency commissioned market research that provides some information on the training need, the extent to which it represents a significant barrier for potential entrants and the likely demand for training. If necessary it will seek further information from potential entrants on their training needs in the New Year. In addition the Agency will initiate discussions with MITO and potential training providers to assess whether they will meet the training need.

Short-Term Strategy Development: Based on its assessment, the Transport Agency will develop an approach for ensuring that training is readily available in the market transition phase. The Transport Agency’s intervention may not be required if the provision of training programmes is a commercially viable proposition. If our assessment suggests, however, that there is a risk that the demand for training during the market’s transition phase will not be met, the Agency will need to consider options including:

Information Provision: Providing information on the likely demand and highlighting the opportunity for industry associations and established training providers to offer short


course training to meet the Transport Agency’s competency assessment requirements

Training Materials’ Development: Developing or subsidising the development of training materials

Facilitating Training Provision: Subsidising training provision or contracting training providers to run programmes on the Transport Agency’s behalf during the market transition phase.

Costing assumptions based on a degree of Transport Agency intervention have been included in the project’s implementation cost estimates. These will provide the parameters that will need to be factored in to the final training strategy. Medium-Term Strategy: The Transport Agency will work with MITO, the transport and automotive repair industry and the New Zealand Qualifications Authority to establish national competency standards on the National Qualifications Framework. This would:

Enable the integration of inspector competency requirements into a range of existing national qualifications and training programmes

Recognise inspection as a career pathway option

Enable consistency in training provision, including as an extension to existing apprenticeship programmes

Enable national moderation of training programme outcomes

Enable access to Tertiary Education Commission funding for industry.

Managing Applications

Issue Unknown number of applications for approval of:

Organisations

Inspectors

Sites.

Desired Outcomes

The Transport Agency understands the likely demand for inspection organisation, inspector and site approvals.

The Transport Agency establishes clear expectations with stakeholders on approval timeframes, which it meets.

The Transport Agency establishes approval processes and timeframes that as far as possible present a ‘level playing field’ for current and potential entrants.

Approach

NZIER has provided initial volume estimates based on its market research. The project team will initiate further market research or an expression of interest/request for information process in tandem with the release of its operational requirements to get a better gauge of likely workload.

The project team will confirm business process and system requirements for managing applicants. (This will include a truncated variation for WoF inspecting organisations wanting to enter the CoF A market.)

The Transport Agency will establish transition contingency arrangements for temporarily redeploying existing staff and temporarily suspending selected business-as-usual activities and/or contracting temporary staff if application numbers become an issue.

The Transport Agency will establish application processing service standards that take account of likely volumes. The project team proposes managing the initial applications as tranches, with subsequent applications managed to agreed service levels.


Industry Engagement Issue

No established group that represents current and potential providers.

No established group that represents all vehicle operators.

Desired Outcomes

The Transport Agency is able to engage effectively with representatives of the current and potential provider sector and customers to test new regulatory requirements and tools and address system implementation issues.

The Transport Agency and industry establish effective service-delivery-enabling tools.

Proposed Approach

The Transport Agency will establish a Transport Agency-industry forum that can, inter alia, consider how industry needs to respond to and prepare for, from an operational perspective, matters that arise from changes proposed by the Agency.

The Transport Agency will convene focus groups of key stakeholders to pre-test key operational requirements associated with our regulatory settings in order to achieve customer-focused solutions.

Changing Current Deeds/Notices of Appointment for Inspecting Organisations

Issues

Legal liability.

Transition issues associated with coverage.

Current deeds and notices do not reflect proposed new regulatory parameters.

Desired Outcome Notices of Appointment are developed and introduced that:

Mitigate the risks associated with transitioning to the new service delivery arrangements

Provide terms and conditions that reflect the new regulatory parameters.

Proposed Approach The Transport Agency will establish Notices of Appointment with current providers that cover:

The new regulatory parameters

The dates on which the new notices come into effect. Alongside the establishment of new Notices of Appointment, the Transport Agency will agree transition arrangements with each of the current providers.


Transition Arrangements for Current Inspectors

Issues

The Transport Agency needs to establish transition arrangements to the new occupational regulatory requirements for current inspectors.

Desired Outcome

Current inspectors’ appointment status remains unchanged and they transition smoothly to new appointment arrangements and requirements at the end of their current terms of appointment.

Proposed Approach Inspectors’ current certificates of appointment are unaffected by the proposed regulatory changes. They will not be required to reapply to remain inspectors. The Transport Agency will transition current inspectors from their existing certificates of appointment to new appointment arrangements reflecting the new occupational regulatory requirements when their current terms of appointment end. The Transport Agency will reflect its requirements for a Code of Conduct and staff professional development as conditions of appointment applying to inspecting organisations.

Transport Agency Market Intelligence

Issue The Transport Agency’s information sources are largely limited to the sectors it regulates.

Desired Outcome The Transport Agency has a well developed understanding of the CoF market, the wider transport sector and the drivers of change within it that informs its regulation of CoF service delivery.

Proposed Approach The Transport Agency’s CoF monitoring and evaluation system will encompass gathering and assessing information on the overall CoF market. Key components of the system may include, inter alia:

The geospatial provider map being developed to monitor inspection service coverage

A complaint process

Customer satisfaction survey information.

CoF System Links & Dependencies

ORS

7.2 The Transport Agency’s ORS is designed to influence vehicle operator behaviour. Changes to the ORS are ‘out of scope’ for the WoF/CoF Project. The implications of the proposed CoF regulatory changes for the ORS do, however, need to be considered, as do the implications of the ORS for the effective regulation of the CoF service delivery model.

7.3 Vehicle operators do not want CoF inspection failures to affect their ORS scores adversely. The

current ORS metrics provide an incentive for vehicle operators to make any repairs required to obtain CoFs before their vehicles are formally inspected. Under the proposed regulatory model, they also provide an incentive for vehicle operators to choose inspecting organisations that can offer bundled inspection and repair services over ‘inspection-only’ organisations.


7.4 Vehicle operators are likely to expect inspecting organisations that offer bundled inspection and repair services to address any CoF-related faults before they complete formal inspections. As a consequence the Transport Agency might anticipate further increases in first-time inspection pass rates and a trend towards 100% pass rates from inspection organisations offering bundled services. This can be accomplished without compromising inspection outcome standards, by inspecting organisations either undertaking informal ‘pre-CoF’ inspections or failing to record faults as required by the Transport Agency during the formal inspection process before making the necessary repairs.

7.5 The project team’s proposed regulatory settings are designed to ensure that the formal

‘inspect/record faults/re-inspect/certify process’ is followed as it considers it to be good practice and support consistent inspection outcomes. Audit arrangements can be used to support the intended inspection process to some degree, but the Transport Agency has no authority to regulate ‘pre-CoFs’. The current ORS metrics provide a significant commercial incentive for vehicle operators and inspecting organisations to develop workarounds to the intended CoF inspection process that will result in underreporting of CoF-related fault data, and also undermine the utility of the CoF fault metric in the ORS.

7.6 The project team recommends that the Transport Agency review and consider amending the

ORS metrics to address these issues.

Taxi Meters 7.7 The Land Transport Rule: Operator Licensing 2007 requires a holder of a passenger service

licence who operates a taxi to maintain a taxi meter in good working order and condition and to have it tested, sealed and certified by the Transport Agency or a person authorised to do so by the Agency at intervals of not greater than six months.25 The Transport Agency has authorised VTNZ, VINZ and the AA to undertake these tasks.26

7.8 The taxi meter requirements are not part of the CoF inspection. For taxi operators to receive the

full benefits of the CoF service delivery reforms, however, there is a need for CoF A inspection organisations to be authorised to test, seal and certify taxi meters. The project team proposes that CoF A inspecting organisations be enabled to apply for and be authorised to meet the taxi meter certification requirements. This issue should be addressed as part of the WoF/CoF project.

TSDA Service Agreements 7.9 The review of service agreements with TSDAs is out of scope for the project team. The service

agreements will, however, need to be reviewed in light of the changes to CoF regulatory settings. This work should occur outside the WoF/CoF project.

Accreditation 7.10 A decision to proceed with an accreditation programme beyond the initial trial evaluation stage

would affect the overall shape of the CoF market and the demand for CoF inspection services.

25

Land Transport Rule: Operator Licensing 2007 (4.11). 26

Transport Agency Technical Bulletins: Taxi Meter Compliance.


CoF Variable Frequency 7.11 The implementation of a CoF variable frequency process could affect the demand for CoF

inspection services. The assumption that the project team has made and that is reflected in the Cost Benefit Analysis is that the number of vehicles moving to less frequent CoF inspections will equal the number of vehicles moving to more frequent CoF inspections, resulting in no change to the overall demand for CoF inspections.

WoF System Spill-Over Effects 7.12 A number of the CoF changes have implications for the WoF system that will be addressed as

part of the wider WoF/CoF project. We have already identified the changes to the removal of pink and green stickers, and the Transport Agency’s inspection provider interface requirements will also be applied to the WoF system. Other key areas of impact on the WoF system include:

Risk-Based Auditing: The Transport Agency is proposing to make changes to its audit process for CoF providers that mitigate risks more efficiently and effectively than the current system. Some of those organisations also provide WoF services. Rather than applying two different audit processes to those organisations, the Transport Agency will undertake one integrated audit that covers the regulated ‘in-service’ inspection services they deliver. More broadly, the Transport Agency will look to apply the new audit process to all in-service certifiers (WoF/CoF inspection organisations) as it will make better use of the Agency’s limited resources and result in an integrated, consistent approach to audits. Introducing improvements to the WoF audit process will free up Transport Officer resources that can be used to help address – in part – the anticipated increase in the number of CoF inspection organisations

Occupational Regulation: A similar approach will be adopted to the occupational regulatory requirements for CoF and WoF inspectors given the overlap in classes of inspector. By way of example, when establishing national competency standards and a national qualification for CoF inspectors, it makes sense to establish a competency framework that covers all inspectors. Likewise, if the Transport Agency establishes professional development requirements for CoF inspectors, it would be appropriate to extend those requirements to WoF inspectors.

Other Certification Services 7.13 The changes the Transport Agency is making to the regulatory settings for CoFs and its

administration of them may have application to the regulation of other certification services, including:

Entry certification for new and used vehicles

Alternative fuel system certification

Border inspections of used imported vehicles

Heavy vehicle specialist certification

Light vehicle repair certification

Low-volume specialist vehicles. 7.14 A consideration of these other regulatory areas is out of scope for the project team. The

Transport Agency may wish to consider reviewing these services in line with its regulatory requirements, where appropriate, with a view to improving overall system performance.


Transport Agency Implications Role 7.15 The Transport Agency is responsible for regulating the CoF vehicle inspection system. The

proposed changes to regulatory settings and the changes they are intended to produce to both the system outcomes and the provider market will involve a shift in emphasis in how the Transport Agency gives effect to this role.

7.16 The organisation is moving from a current-state position that has given more weight to ‘arranging

and managing service delivery’ to a future-state position that places more emphasis on being a ‘vehicle inspection industry regulator’.

Capability & Capacity 7.17 The introduction of the new regulatory settings and the requirement to approve and oversee a

larger number of inspection organisations, inspection sites and inspectors have capability and capacity implications for the Transport Agency.

7.18 The project’s change management process will enable the organisation to consider and address

the transition and future business-as-usual implications for:

Organisational structure

Organisational culture

Organisational leadership

Staff requirements (capacity and skills). 7.19 The organisation’s business processes and system requirements are also being addressed

through relevant work streams. 7.20 Key considerations that will be addressed in the plans include:

Leadership and Accountability: Ensuring that the organisation has clear accountability arrangements for the oversight of the CoF system

Capacity: Ensuring that the organisation has sufficient capacity to manage the anticipated increased number of enquiries and applications during the transition to the new market model, then manage any increase in ongoing business-as-usual workloads

Capability: Ensuring that gaps in capability, including those associated with evaluation and occupational regulation, are addressed.

7.21 IT System: A key system issue that needs to be addressed as soon as possible because of the

development timeline associated with its introduction concerns upgrading the Transport Agency-inspecting organisation interface. The current Landata system could be made available to new inspecting organisations at little or no additional cost to the Transport Agency. The current system is, however, based on dated technology that the Transport Agency has been considering upgrading. While the introduction of an integrated web-based interface is not essential to enable engagement with new inspecting organisations, it is highly desirable, not only for CoF inspection providers but also for WoF inspection providers. It will:

Provide greater flexibility to potential inspection organisations in terms of how they engage with the Transport Agency

Improve the efficiency and effectiveness of data-gathering and monitoring for CoFs (and WoFs)

Accommodate any convergence in the provision of CoF A and WoF inspection services.


APPENDIX A

CoF REFERENCE GROUP MEMBERS & MEETING DATES

Customer Reference Group

Jasmine Koh Bus & Coach Richard Small Rental Vehicle Association (Workshops 1 & 2) Philip Manning Rental Vehicle Association (Workshops 3) Kerry Arnold Road Transport Forum Tim Reddish New Zealand Taxi Federation (Workshop 1) Ray Shaw Alan Shaw Transport Ltd (Workshops 2 & 3) John Anderson LG Anderson Ltd Ian Emmerson Emmerson Transport Ltd Workshop 1: 10 June 2013 Workshop 2: 11 July 2013 Workshop 3: 20 September 2013 Vehicle Service & Repair Reference Group

David Crawford Motor Industry Association Dougal Morrison Motor Trade Association Martin Wheldon CablePrice NZ Wayne McCurdy McCurdy Engineering Ltd Peter Goodwin Diesel & Machinery Services Ltd Jim Williamson Truck Stops NZ Sean Gilbert Southpac Trucks Ltd (Workshops 2 & 3) Workshop 1: 11 June 2013 Workshop 2: 4 July 2013 Workshop 3: 26 September 2013 Current Provider Reference Group

Stella Stocks AA Greg Ranson Drivesure Frank Willet VINZ Mike Walsh VTNZ Mike Evans VTNZ Workshop 1: 12 June 2013 Workshop 2: 10 July 2013 Workshop 3: 28 September 2013


APPENDIX B

SELECTED CURRENT - STATE REGULATORY SETTINGS

Appointment of Inspecting Organisations Under section 2 of the Vehicle Standards Compliance rule anyone can apply to become a vehicle inspector or vehicle inspection organisation to undertake certificate of fitness certification and certification. Under the rule the Transport Agency must be satisfied that the applicant is a ’fit and proper person'. ’It must also give such weight as it thinks fit to, inter alia, the applicants:

Ability and competence to undertake inspection and certification activities, including qualifications and experience of vehicle inspectors and persons who will be carrying out the activities.

Arrangements for civil liability insurance and professional indemnity insurance

Financial and professional interest in importing or selling vehicles or vehicle parts, or modifying or repairing vehicles and the extent to which that interest, if any, is counterbalanced by other relevant factors

The number of vehicle inspectors and inspecting organisations already appointed and available in the relevant geographical areas

The applicants quality assurance and performance management systems

Any other information the agency considers relevant. The definitions section in the Rule states an inspecting organisation means a person or organisation appointed by the Director under 2.2 (1) who is responsible for inspection and certification outcomes. This does not preclude a self-employed person being appointed as both an inspecting organisation and an inspector (as is the case with Specialist Certifiers (Low Volume Vehicle, Heavy Vehicle Specialist Certifies, Life Vehicle Repair etc). Under the VIRM the Transport Agency requires persons wanting to be appointed as vehicle inspectors to be sponsored by employer inspecting organisations. Independence: There is no reference to, or definition of, independence in the Act, the VSC Rule or the Deeds with TSDAs. The Transport Agency business model does, however, include the principle that: inspections will be independent and consistent.” Although it does not offer further definition of the term. The Land Transport (Ordering a vehicle off the Road) Notice 1999 requires that a pink or green stickered vehicle must be inspected by a vehicle inspector who is an employee of an authorised vehicle inspection agent who does not repair vehicles (other than to replace light bulbs and windscreen wiper blades) in the course of business. When considering the appointment of inspecting organisations, the Transport Agency has taken the approach that independence requires a delivery model that completely separates inspection and repair. Inspection Sites The Transport Agency maintains the right of site approval in order to, inter alia, maintain a balanced coverage model. The Transport Agency approves 5 types of inspection facilities:

Main Testing stations: usually offering CoF A & B services; conform with VIRM site spec requirements; no restrictions on opening additional sites although the Agency reserves the right of approval to manage any coverage issues.

Off-Site: Usually only provide COF B services. Located in rural towns to provide geographic coverage for vehicles unable to regularly access a main testing station. Must comply with site specifications. Restricted to VTNZ only.

Island Site: Located on offshore islands, usually operated twice a year for both CoF A and B services. Available to all vehicle operators. Sites must meet minimum requirements to facilitate safe inspections. Restricted to VTNZ only


Urban Bus Site: Only CoF B services for large bus fleets. Only accessible to the bus operators that provide the sites. Vehicle operators can choose the inspecting organisations that provide the inspection services

Specialist Site: Usually used only twice a year for CoF Bs of specialist vehicles that cannot move from sites or fit into testing facilities. Inspection areas must meet minimum requirements to facilitate safe inspections. Vehicle operators choose the inspection organisations that provide the inspection services.

Inspecting organisations must ensure that:

The physical dimensions of the sites are suitable for the vehicles inspected

Online access to Landata is available

Roller brake machines with load weighing capabilities are available. Exemptions: RBM: If numbers and vehicle types mean brake testing can occur using a suitable and more cost-effective method Landata: If no suitable landline telephone. The Transport Agency requires main sites to belong to inspecting organisations and to meet corporate branding requirements. Coverage This following coverage principle has underpinned the Transport Agency’s approach to negotiating the establishment and approval of off-sites and island sites by VTNZ: “No operator should have to travel more than 30 minutes (or more than 40km) to reach an inspection site”. Inspector Appointment

Under section 2 of the Rule anyone can apply to become a vehicle inspector. The Transport Agency requires:

A inspectors to have been WoF Inspectors

Inspectors to be employed by an inspecting organisation

Inspectors to meet its requirements regarding qualifications and experience and pass the Agency’s exam

Meet the fit and proper person requirements

Inspectors to conduct at least one inspection with a 12 month period to maintain their authority as an inspector

eclare any potential conflict of interest. A conflict of interest arises where the inspector has a financial or professional interest which has the potential to conflict with the performance on their duties and responsibilities as an inspector.

The Deed of Appointment for TSDAs requires them to ensure their inspectors do not provide any services that conflict with or adversely affect the proper performance of the Deed. The Deeds of Appoint require inspecting organisations to employ inspectors with “the required skills and are properly qualified, competent and experienced personnel.” Inspecting organisations are also required to have “formal continuing professional standards for staff providing Services” The Transport Agency can impose various sanctions on inspectors, including suspending or revoking their appointments as inspectors in the event that the Agency determines they are not meeting the standards specified in the VIRM or the conditions of appointment. TSDAs have in-house training programmes to prepare applicants for the Transport Agency exam and provide professional development. There are no external training providers for CoF inspectors.


Audit Requirements Under the VSC Rule the Transport Agency may monitor and review the performance of a vehicle inspector, or inspecting organisation, including the performance of inspection and certification activities at individual sites. An inspector or inspecting organisation must bear the costs of the monitoring and review of their performance in accordance with any prescribed fee. One of the Transport Agency’s operational business objectives is to “ensure all sites undergo regular and appropriate performance reviews”. Towards this end, the PRS enables the Transport Agency to review the performance of certifiers and either reward good performance or impose penalties and sanctions for poor performance, including the withdrawal of authorisations to undertake inspections. The General part of the PRS measures how well certifiers perform in complying with all legal requirements. It measures requirements in five categories: technical performance, administrative performance, resources, management, and performance improvement. The PRS is applied to an inspection site but does not involve an individual assessment of each inspector at that site. Sitting alongside and complementing the PRS, the Transport Agency is able to:

Re-inspect any vehicle nominated by it that has been inspected by the supplier

Request an inspection and certification of a vehicle (such a request may be made by a ‘mystery shopper’ who does not disclose that the purpose of the request for inspection is monitoring and audit).

The Transport Agency’s current audit requirements are reflected in the Deeds of Appointment with TSDAs and the Notice of Appointment for Drivesure. Enforcement In addition to periodic CoF inspections, heavy and transport service vehicles are subject to on-road enforcement. This includes CoF sticker checks by police and local authorities, and inspections performed by the CVIU of New Zealand Police with support from Transport Agency Transport Officers. The CVIU is a nationally managed unit responsible for monitoring all areas of the commercial vehicle industry. It has 89 enforcement officers, of whom 29 are vehicle safety officers. The CVIU operates both mobile units and weighbridge stations around the country. Unit officers annually inspect around 140,000 commercial vehicles.

In-service (on-road) inspections for heavy and transport service vehicles are almost exclusively undertaken by the CVIU. These are commonly known as ‘roadside inspections’. The process is time consuming at around half an hour per vehicle. CVIU inspections are performed at seven levels across a range of topics. CoF-related safety inspections are known as level 3 and level 5. The basic safety inspection level is a level 3 and this accounts for 72% of CVIU safety inspections.

A level 3 inspection can be conducted by any trained CVIU enforcement officer at a similar standard to the pre-trip walk-around inspection recommended for drivers. CVIU level 5 inspections are more detailed inspections, comparable with CoF inspections but lacking the facilities and much of the diagnostic equipment required for CoF testing. Level 5 inspections are conducted by vehicle safety officers who are experienced and qualified motor mechanics. A CVIU inspection can result in an instruction to an operator to repair the vehicle. If the defect is serious, a non-operation order may be issued. A pink sticker indicates an immediate safety risk (e.g. brakes, tyres or steering) and that the vehicle may not be used until a new CoF is issued. A green sticker indicates a non-compliant vehicle that can be used only in order to bring it into compliance.

A range of other enforcement actions, such as fines, is available. Police and local authorities sometimes waive infringement fines for overdue CoFs if the owners or operators obtain new CoFs within a certain period of time. This is discretionary. Demerit points cannot be issued for having a vehicle in an un-roadworthy condition, even though they can be issued for not having a current vehicle licence.

47

CoF B (top two) and CoF A (bottom two) site locations, and centres where there is existing competition APPENDIX C

48

49

APPENDIX D

ASSESSMENT CRITERIA & PERFORMANCE INDICATORS

Assessment Criteria

Indicative Performance Indicators (Subject to further development and inclusion of detailed indicators that formed part of the Cost Benefit Analysis)

Safety Outcomes Safety: Will the changes maintain or improve vehicle safety?

% crashes, injuries & deaths where vehicle defects are assessed as a contributing factor

Inspection Standards: Will the changes maintain or improve the integrity of the vehicle inspection process by ensuring that consistent inspections are undertaken that meet the requirements of the Transport Agency’s VIRM?

Audit results

Operator Safety Ratings

CoF-related infringements

Customer Benefits Choice: Will the changes provide vehicle operators with a greater choice of service provision?

Choice of providers

Self-management option available

Access & Availability: Will the changes maintain or improve the access to, & availability of, inspection services to vehicle operators in a manner that responds to customer needs?

Time/Distance travelled to obtain CoF inspection & certificate

Customer satisfaction

Productivity: Will the changes improve vehicle operator productivity by:

Reducing downtime attributable to the inspection & certification process?

Reducing downtime during the vehicle operator’s normal operating hours?

Reducing vehicle operator inspection costs?

Operational downtime attributable to the CoF inspection, repair & certification process

CoF prices

Regulatory Costs Provider Compliance Costs/Sustainability: Will regulatory compliance costs result in a sustainable provider market?

Compliance costs

Market size – total number of inspections undertaken annually

Number of providers

Inspection providers’ market share

Inspection provider margins

Administrative Cost: Will the proposed changes minimise the establishment & ongoing costs of regulating the CoF system?

The Transport Agency & Police CVIU CoF-related capital & operating costs

Implementation Risk: Are the implementation risks within acceptable bounds? Have appropriate mitigation options been identified? Can the target implementation date be met?

50

APPENDIX E

OPTIONS’ ANALYSIS OVERVIEW

The following tables summarise the options’ assessment for some of the key features of the regulatory model undertaken by the CoF project team and highlight the phased introduction of selected elements associated with these features.

9

Inspection Organisation Assessment

Im

ple

men

tat

’n

Enabled

(Not sufficient in own right)

Enabled Not as part of standard service delivery model

Safe

tyO

utc

om

es •Maintained Maintained/

Potential for gainsRisks - conflict of interest

Accreditation provides more appropriate quality assurance & risk manag’nt mechanisms

Cu

sto

mer

Ben

efi

ts

Low-Medium (Choice, Access/coverage/ productivity gains)

Medium-High(Choice, Access/coverage productivity gains outweigh risk of price increases from quality assurance requirements)

High(Access, productivity gains)

Reg

ula

tory

Co

st

Pro

vid

ers

Slightly higher costs- Emphasis on quality assurance systems(Note: When considering the appointment process alone, not whole regulatory model )

Slightly higher costs- Emphasis on quality

assurance systems(Note: When considering the appointment process alone, not whole regulatory model requirements)

Higher costs(associated with QA systems)(Note: When considering the appointment process alone, not whole regulatory model requirements)

NZTA

Estb Cost: Very LowUnit Cost: No changeTotal Cost: Increase (v low) (volume)Estb Risk: V Low

Estb Cost: LowUnit Cost: No/Low changeTotal Cost: Increase(volume)Estb Risk: Low

Estb Cost: MediumUnit Cost: Low increaseTotal Cost: Increase(volume)Estb Risk: Medium 9

More Inspection only organisations

Service & repair organistions

Vehicle operator organisations

51

15

Enhanced Occupational RegulationIm

ple

mentat’n Required

(1 July)

Req(1 July)

Desirable

(1 July)

Desirable Desirable

(1 July)

Safe

tyO

utc

om

es Maintained/

Improved

Maintained/Improved

Maintained/Improved

Maintained/Improved

Maintained/Improved

Cu

sto

mer

Ben

efi

ts Neutral V Low risk Low risk(Access)

Risk(Access/Price)

Low Risk(Access/Price)

Reg

ula

tory

Cost

Pro

vid

ers No Change

(V Low)

Increased cost(V Low)

No cost Increased Cost(Low-Medium)

Increased cost(Low-Medium)

NZTA

Estb Cost: LowUnit Cost: No changeTotal Cost:No changeEstb Risk: Low

Estb Cost: LowUnit Cost: No changeTotal Cost: No changeEstb Risk: Low

Estb Cost: V LowUnit Cost: No changeTotal Cost: No changeEstb Risk: Low

Estb Cost: MediumUnit Cost: No changeTotal Cost: No changeEstb Risk: Medium

Estb Cost: LowUnit Cost: IncreaseTotal Cost: Increase(volume)Estb Risk: Low

15

Establish a Code of Conduct

Update Assessment

Requirements

Extend Professional

Practise Requirements

Extend Prof Development Requirements

Periodic Appointment

Renewal

Certificate of Fitness Service Delivery Regulatory Model · 1.1 This paper outlines the WoF/CoF Project team’s recommendations for changes to the regulation of the Certificate of

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