Local government issues

By Richard Michael
CEO
New Zealand Contractors' Federation

Local government is our sector’s largest customer collectively, and is therefore critical to our success. In recent times, however, there have been a number of developments that are making life difficult for some contractors who do work for Local Authorities (LAs).

First, I want to say that in general the relationship between LAs and the industry is excellent with many contractors having good, long-standing working relationships. At a national level, things are a bit different as there is no single organisation that speaks for all the LAs. Each is literally a law unto themselves and there are many different ways to get to the same conclusion.

The Local Government Act gives a tremendous amount of autonomy to each LA and this has caused many of the problems we regularly see where two or more councils have to work together but don’t. There are provisions in some circumstances where ‘national interest’ type issues can be called in by central government, but these are almost never used.

The latest changes to the Land Transport Management Act, which devolves consultation and local area priority setting, including State Highways, to the regional land transport committees, looks like a further move in this direction and will only add to the confusion.

Contractors across the country report real problems at getting work to tender from the LAs, at an appropriate time in the construction season, if at all. It seems there are a couple of issues here. First, many councillors were elected on the promise of low rates rises. This has put the squeeze on budgets in general but maintenance and construction budgets seem to have been particularly badly hit.

Replacing a few less kilometers of footpath is an easy way to make the books look better. Unfortunately, as we all know, the problem is only being postponed. Markedly increased expenditure, along with poor quality amenities, is the outcome of this sort of thinking – something many of us hoped had disappeared in the 1980s.

Another aspect to this problem is a lack of skilled people within the LAs and the design community. This makes getting the work out and the project management difficult. It’s a problem is not limited to these groups. Everybody in the sector faces a shortage of key skills and local government needs to work hard to build up and retain key staff at all levels.

There have been a couple of unsavoury outcomes from these difficulties being faced by LAs. The first, which I have talked about before, is the move toward new procurement techniques. In some cases this has meant that local contractors have been cut out of work because councils and consultants have not been able to get the work out to the market. Generally the problem has not been a lack of contractor capacity, but they are the ones who suffer if they are not part of the selected group. This type of procurement is only going to get more common.

The benefit to the councils is that their admin budgets go down as they do not have to tender and manage lots of small contracts. However, it seems that as the Council employees get further from the coal face, they lose the ability to make sure rate payers are getting value for money. I suspect that any administrative cost saving are far outweighed by this loss of control.

By far the worst outcome of the pressure on LA budgets is the slow but incipient rise of in-house council works groups bidding against ordinary contractors. I am not talking about LATEs here, who have to pay tax, borrow money at commercial interest rates and bid for work like all contractors. I am talking about the in-house work groups who have no cost of capital, pay no tax and have access to work not tendered on the open market.

There is a place for LAs to have work groups in certain circumstances but bidding against local contractors is not one of them. This problem has surfaced in Hawke’s Bay and Palmerston North, that I know of, and probably many other places besides. I believe this practice has to stop and the federation will be doing what it can to ensure that it does.