By Richard Michael, CEO, New Zealand Contractors' Federation
The announcement by the Government of an enquiry to look at the viability of a Public Private Partnership (PPP) to build the Waterview Connection project in Auckland is a positive step in completing the Western Ring Road route. It will be the largest single transport infrastructure project in New Zealand and will be a key piece of infrastructure for Auckland and the country. Even though the actual physical start of project is still sometime away, this is certainly a step in the right direction.
However, the announcement was unexpected as there has been no consultation about this type of procurement and the Government had not been encouraging of this model in the past. Also, a wide-ranging procurement review process, conducted by Land Transport New Zealand, and involving all the important transport infrastructure stakeholders, has just been completed and PPPs were never mentioned or discussed in any of the deliberations of this group.
This shows the ad hoc nature of procurement in New Zealand. We have 10-year plans, long-term council community plans, procurement reviews and similar activities all the time, but when it becomes politically useful to change tack, try something new or change the start dates of certain projects, all of that work counts for nothing. None of this gives much certainty to the industry.
The Contractors’ Federation has a policy of encouraging a variety of contract sizes and types. We have no opinion on the efficacy of PPPs. We believe how the money is obtained is less important than getting on and doing the work and, in that light, the Government is to be congratulated on its proactive approach.
What we are saying is, let’s have a considered debate on procurement; consult with the industry and then come up with some guidelines that the industry can rely on… for more than six months. That is what we thought the procurement review was all about, but somehow PPPs were left off the list.
The contracting industry also needs to be very careful about new procurement options. With such large amounts of money at stake, a misstep for the constructor can be financially fatal. There will need to be a great deal of consultation with the industry before any decisions are made. Obviously we can enlist the help of people with experience in this area, but each project and jurisdiction is different and experience can be expensive to gain.
There is undoubtedly spare capacity in the industry at present, particularly in the second and third tier contractors. However, such a large project as Waterview is likely to strain that capacity over the years it is being planned, consulted on and built.
The procurement option chosen needs to make sure we are making best use of our scare resources. Whatever option is chosen, if there any aspect of competition between bidders, then the costs in terms of manpower and money are huge. Even using a very conservative 1.5 percent bidding cost estimate, the losing bidder will have expended up to $35 million – a lot of wasted resources.
The other issue that needs to be considered is the legal viability of tolled roads. The Land Transport Management Act has some pretty serious hurdles to overcome before tolls can be charged, such as a free alternative route and no government guarantee of minimum usage levels. These will be difficult problems to solve.
Finally, it is important that the industry and the country hold the Government to account. They have embarked on this study with a view to getting this vital project finished sooner rather than later. This study process must not be used as an excuse to procrastinate and delay. Lets get real about the infrastructure needs for New Zealand and get going.
Contractor Vol.32 No.2 March 2008
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