Contracts are awarded in New Zealand by the public sector every day. They range from very small to huge. Last year there was an article in Newsroom about extra claims being made by the contractor CPB on Transmission Gully:
Author of Government for the Public Good Max Rashbrooke said the problem was private partners to this contract had NZTA “over a barrel”.
- “[NZTA was] faced with Hobson’s choice really. It’s only the best possible deal from a set of extremely unpalatable options.
- “How could they [NZTA] ever walk away from the whole project? You can’t leave Transmission Gully unfinished. It’s literally impossible.
- “If they tried to play hardball, the consortium at this point would quite possibly walk away having got some of their payments up front. What on earth would you do as a public sector? Spend years dragging onto a decade suing the consortium over it while you essentially have no road?”
There are two ways of seeing the agreement to pay out $145.5m to the CPB HEB joint venture building the road, before the road has been completed.
From NZTA’s perspective, it holds the builders accountable. The builders will get paid every month (under the original PPP contract they would only get paid at the end of the contract) but that would allow the Government to hold them to account if they’re not performing because they will be able to withhold the final $7.5m until after the road opens on September 27.
However, the arrangement also bears major similarities to one of the most generous forms of contracting: a cost-plus arrangement where you are paid month by month for the work you complete.
The current arrangement is that 10 percent of the total project’s budget will be paid out to the builders in advance to complete less than 15 percent of the work.
NZTA will also pay an additional $45.5m for a new road surface on 9km of road near the Wainui saddle – although it is unclear whether this sum will be paid in advance or on settlement of the full amount due for the road’s construction.
Regardless, Road Transport Forum’s Leggett agreed the PPP arrangement had turned into something very similar to a “cost-plus” arrangement.
“If we’re going to have a proper review we would expect those are the issues that would be examined – and why they happened.”
Here’s the article. It’s from last year but it’s still worth a read:
What made me wonder about Government contracts was that recently I believe CPB has submitted an additional $55m claim to Otakaro Ltd for the construction of the Convention Centre. What is the total cost of this white elephant?
In addition to this CPB have also been the contractors of the CDHB building delivered several years late. What additional claims have been made on this project? It will be hard to find out as the Ministry of Health aren’t exactly forthcoming with information, even under the OIA.
Maybe we should have a session in the future on where we have got to with contracting in New Zealand. Have we got to the stage where an Australian company (owned in South America) is the only company able to take on large contracts? I can remember when CPB came to New Zealand. I was on NZTA Board and CPB were keen to prove that they were up to the same standard as companies already operating in this country. We should not forget that Fletchers is an Australian company as well.
My question is it possible to promote consortiums of New Zealand companies taking on our own construction projects? Rosemary writes – isn’t this how SCIRT worked??
Is this the way that we can get sensible competition between local contractors and international players? Can contracts be broken down into smaller portions to enable local companies to compete? Have the public sector become so risk averse that all of the risk ends up on the contractor and none on the public sector? Is that why we have big international companies building many of the essential infrastructural projects?
One of the really important ways of ensuring that there is a vibrant economy, especially at a time where the cost of money is so low, is to focus on infrastructural projects. They are an investment into the future. On the top of them our economy thrives and we will be brought into the 21st Century. Young people will have jobs and lifetime careers. Just as my generation did. My concern is that I hope that the profits from these projects will stay in New Zealand. That as well as hundreds of thousands of jobs being created, we will have hundreds of thriving companies making excellent profits and retaining these profits in New Zealand. How can we promote the growth of New Zealand owned contracting companies?