By Jeremy Sole
CEO, NZ Contractors’ Federation
In July I wrote about the Auckland councils’ regional contracts group (ARCG) and its plans to introduce unconditional, on demand bank bonds. As a result of that article the project was kicked for touch and the Auckland NZS3910 will be revisited next year.
In the meantime North Shore City Council has decided to go ahead with these bonds anyway, and it is predictably creating an immediate and negative impact at its tender box.
A significant national contracting firm has advised the federation that it has “refused to price all larger contracts [at NSCC]. We have provided bonds for two minor landscaping jobs where the risks are reduced”.
The federation will push this one to the limits and to that effect we are currently setting up a meeting at the Auditor General’s office to discuss the requirement for local authorities to be fair and reasonable in their contractual relationships. As a parallel work stream we also intend to work with local authorities to create a form of bond that satisfies everyone’s requirements.
When writing these columns I often wonder if anyone actually reads them, and then, occasionally, feedback comes through loud and strong.
Last month I wrote about how Queenstown Lakes District Council had opened up some of the work that had previously been closed and available only to a selected panel of contractors. Responses to my August edition column have ranged from strong unequivocal support to lightly guarded pessimism. Naturally enough, there were differences in opinion between those who were inside the panel and those on the outside of it.
As a result, I feel I should reiterate and expand on a couple of things from that column. I had written: “Councils – and other infrastructure clients such as the power industry and rail – need to continue taking a strategic approach to this issue [procurement strategies] and look at the best ways they can allocate work so that they get value for money and in a way that ensures all tiers of the industry are supported so that their interests as the client as well as ratepayer and taxpayers best interests are supported in the medium to long term.”
In the Queenstown Lakes District Council (QLDC) case, the council took a strategic approach to procurement when it set up its contractor panel, and frankly it didn’t have any choice but to go down that route at the time.
Now it is again taking a strategic approach to reviewing the panel concept in a way that doesn’t involve throwing the baby out with the bathwater. So its ‘experiment’ with going to the open market with a proportion of the work is a prudent one, and does not automatically mean it is a staged exit from the panel arrangement.
In fact, it is likely that quite the reverse will happen if the experiment shows that they had been receiving market competitive tenders and high quality from panel members.
The QLDC is actively taking a strategic approach to ensuring they balance the short and long term ratepayer interests through obtaining value for money from a healthy civil construction industry in its area.
Naturally, its situation is somewhat different to many others, given the remoteness of the areas where much of its work is undertaken and the need to attract and gain commitment from contractors who perceive the continuity risks to be high and who may have lucrative opportunities from deploying people and equipment elsewhere.
This is quite a different situation to what is happening in Christchurch with council-owned contracting firm City Care. The federation has constantly lobbied Christchurch City Council to open up its maintenance and wastewater contracts for open tender.
The council’s response was to set up an ‘independent’ panel, including council representatives and others, to negotiate directly with City Care rather than risk going go out to test the market.
We are not privy to how the negotiations were conducted but, not surprisingly, the Christchurch city facilities maintenance contract was again awarded to City Care, and the city waste and water contract was awarded to, you guessed it, City Care.
Perhaps I am a bit naive, but I would have thought the best way to test for market prices, quality deliverables, and innovation would be to go to the market with at least part of the work in the same way that QLDC is testing its market.
QLDC figured that out and has been transparent and pragmatic about how it is testing its market. However, judging by its financial performance over the past six years, City Care would probably fall over if Christchurch City contracts were put out to the market for tender and that wouldn’t be a good look for Christchurch City Council. Perhaps the company did better this past year than it did in the previous five – we’ll find out when its annual report comes out in a couple of months.
To close off this topic I should reiterate that the federation recognises there are a wide range of procurement options available to local authorities and that each has its place in a properly constructed strategic purchasing environment. What is good for one local authority’s ratepayers may not be the ideal solution for another.
The key drivers in decision making should be the quantity and complexity of the work being tendered and the capacity and capability of the local supplier market – and, of course, the willingness to commit resources to the council’s work programme.
Achieving a balance in this is the best way to ensure healthy competition and the ability to achieve long-term value for money and best outcomes for members of the community of ratepayers who are funding the work.
Contractor Vol.34 No.8 September 2010
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