Infrastructure Minister Shane Jones says the “spectacular collapse” of Ebert Construction highlights the need for a more beefed up independent infrastructure agency within Government.
On Wednesday, the construction company was put into receivership; some “poorly performing” Auckland projects have been blamed for the company’s woes.
John Fisk, one of the PwC receivers, estimated Ebert owes roughly $40 million.
Speaking to media on Thursday, Jones says the Ebert saga is why such an agency is needed.
“Its importance has grown, given the spectacular collapse in the construction sector of both Ebert and the reduction in value of Fletchers.”
He says it might be time for the Government to “reset our procurement policies.”
“If we outsource so much of the liability in a contractual arrangement that it actually hobbles construction firms… then we are selling ourselves short.”
He says he has asked officials for advice about this.
Jones has previously spoken of such an agency needing to achieve “Charles Atlas-like proportions, with the right sort of financial and policy acumen.”
He travelled to Australia in April to assess how its Government deals with infrastructure projects.
He told Interest.co.nz he wanted to beef up Treasury’s existing Infrastructure Board and turn it into a “robust infrastructure agency.”
Jones says the unit’s job will be to provide high-level, top quality advice as well as finding and managing private sector investment into New Zealand’s infrastructure projects.
Before the Budget, he asked Treasury to prepare a paper, detailing options on what the infrastructure unit would look like.
“We’re working it through at the moment,” Jones says.
“It is a priority, but I can only go as fast as my colleagues and I find common ground.
“But there is a great deal of commonality and I’m fairly confident that we’ll be able to say something about it in short order.”
13 Comments
More Govt drones, no thanks. Recommend changes at the RB to stop Banks lending printed cash to developers without real security, and changes to the companies Act to pierce trusts and associated companies/assets that Developers use to hide their equity (if they have any at all). Subs need to get.
Additionally if Constructors sign up for stupidly low prices, or stupid take all risk conditions on part complete plans (Fletcher's), then that in itself is a commercial decision with its own risk. No different to punching yourself in the face.
All the working groups set up by this government have delivered immense value to the nation.
What next: let's use more "endless" taxpayer money to set up a permanent working group of clueless individuals to support reckless organisations in making baseless decisions.
I think the biggest single factor in this construction industry mess is that principals are putting cost escalation risk onto contractors via fixed or near fixed price contracts. Contractors are told to either take it or leave it but obviously this type of risk is something which seems to be getting close to unpriceable in terms that delivers VfM. The public sector likes fixed prices cos they live in mortal fear of price escalation, “cost blowout” being a ministers least favourite words. The public sector need to be more focused on VfM when they procure rather than the headline number or getting a fixed price. If this agency helps the public sector get its house in order on these major projects then it’s a good thing. My impression is that currently it’s the public sector blind leading the blind on things like Auckland light rail. I don’t see this agency as setting the terms for procurement in projects not involving the public sector. There needs to be more public sector risk sharing on the big transactions, hopefully before all the contractors go bust.
The only contact I have had with the commercial construction firms was in a ChCh rebuild involving one of the four big firms. They operated in a way that we found objectionable. Every problem or delay was automatically billed to the customer. There was no attempt to figure out if it was their fault first. We became their most awkward customer once we figured out they routinely charged us for their many mistakes, some of which we basically had to live with and pay for. It seems this practise is normal, under price to get the job, then rort wherever you can.
Unfortunately you need architects, engineers and project managers to fight for the client. If you can't afford the professionals then no doubt people have been screwed by the contractors. If it costs more to fight it than to pay for it people will tend to give up. It's highly unethical and dishonest practice.
Yet despite their customers getting screwed they still don't make enough money to survive.
With the accommodation supplement budgeted at $1.5 billion per year and growing at 25% per year.. a 25% blowout in Kiwibuild costs is still a better option. (and i don't think that $1.5B includes the extra student allowance payments or Emergency short term accomodation)
Procurement practices have long been stuck on an inputs/outputs evaluation model, which gives the superficial appearance of 'savings' but often ends up more expensive, less quality, and destroys contractor relations. Elsewhere a focus on better outcomes in government produces better results, cheaper over the contract life, and better for firms. Also less gaming as both parties' interest are aligned, and far better for the taxpayer.
Kiwis love cheap and crappy as the only thing that matters is cost, not quality. There is an admission that the cost driven procurement has contributed to a performance failure.
Contractors have often complained to me that the only thing evaluated in a tender is price. Not true in all cases but in most cases. One of the better processes for assessing price is to throw out the highest and lowest bids. In either case they are likely to have misunderstood the scope of the project or are trying to buy the job and hope for variations.
There are other ways to evaluate tenders that aren't about cost but capability, and whether or not the company will have enough money to not go into liquidation during the project.
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