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By Mark Tammett 23 Nov, 2016
I see Chris Trotter is peddling the re-establishment of a Ministry of Works (MOW) , just like decades past when most work was done by government rather than private contractors.

Aside from an ideological bias (towards more government being the solution to any problem), there are several holes in his argument:

1. Some look at back at the MOW days with fondness, justified to some degree because it was era where do-ers got in and did things without endless delays and bureaucracy. But the reason that has ended has nothing to do with private contracting, and everything to do with the RMA and a more regulated environment.

2. Anyone who knows civil contracting and has been part of a tender process, knows that every contractor will generally see a job differentially in terms of the most efficient and cost effective way to deliver the result,  and you'll get a wide variety of prices. Under a competitive tender situation the contractors are encouraged to find cheaper ways of doing it, and the more efficient/less costly proposals generally get the work. When it's a government department there's no such motivation.

3. Anyone who talks to ex MOW workers will generally hear stories of inordinate waste (i.e. point 2 is not just theoretical, it's backed up by what actually happened) in the MOW days.

4. The profit margin that Chris frets about going into private hands is a marginal component in the context of the issues above. Typical margin for a competitive NZTA contract for instance is 5-10%, often less, and sometimes the contractor will lose money. It's of no value to 'gain' that 5-10% profit margin but then actual costs to do the work ends up being say 50% higher.

Some talk about how service levels have dropped in recent decades, for instance when it comes to the maintenance of rural roads - and blame that on private contracting.  However any drop in service standards has nothing to do with private contracting and everything to do with the specification written by Council - which is under increasing pressure to cut costs, because our rates are increasingly being consumed by bureaucracy rather than core services.

You'd think that after the lessons of the 20th century, such as the fall of Communism, the failure of Socialism anywhere in the world to deliver anything but poverty; and to a lesser degree what's happened post earthquake with Christchurch -  that people would have learnt that government control of the economy never works, and never will. But judging may many comments on his thread, who enthusiastically support Trotter's suggestion, it looks like that lesson may need to be learned again in the 21st century.
By Mark Tammett 18 Oct, 2016
It was reported in the Christchurch Press this week that over $300m of projects have been delayed by Christchurch City Council (CCC), many of which sounded like civil rather than building projects.  What's the cause of the delay?  According to one of their managers, "many delays were because of a lack of available contractors".  Really?  My experience is completely the opposite at the moment, at least for civil contractors.  Right now there seem to be a lot  of civil contractors out there desperate for work, who are considering laying off or relocating staff if they don't find any soon - and putting in very competitive tenders with minimal profit as result.  This is presumably due the wind-down in SCIRT earthquake work that the industry geared up for.

If you're a property owner looking to get civil engineering work done, now is a great time to be tendering your project.  As for the cause of the delays in the Council projects, bureaucracy seems a much more likely explanation.
By Mark Tammett 03 Dec, 2015

It was recently reported that the government sponsored ‘Breathe’ residential development project, which aimed to provide an example of how the Christchurch central city should be rebuilt post-quake, has been abandoned. The project started as a design competition with the likes of Kevin McLeod (Grand Designs TV fame) being one of the judges. A winning consortium was announced by the CCDU with great fanfare in 2013, but the developers have failed to obtain the backing of financiers, and after 2 years of waiting the government has finally called it quits. Rival bidders for the project are naturally feeling aggrieved, given the time and money they put into their proposal; only to lose to a bid that was presumably not commercially viable.

This provides a perfect example of the folly of mixing business with government, and how a government that tries to ‘pick winners’ and back commercial projects leads to inefficiency and distortions. In the real commercial world without government interference, price signals provide a discipline that must be adhered to, and you have real competition at every step of the process. For example:

  1. Firstly land prices fall or rise to their natural level. One of the stated aims of the gov’t acquisition of so much land after the quake was to reduce the effective size of the CBD and maintain the values of the areas left open to development. In other words create an artificial shortage of land to prop up prices. In terms of their stated aims they have certainly succeeded, to the point where sale prices of land seem to be higher than they were pre-quake. But this is a bizarre situation given the huge expanse of bare and dusty land left in the city, that there is no longer any strong demand for office space, and the relative unattractiveness of this location compared to pre-quake. There’s an oversupply of land but still the prices are high, and that can only happen where there’s gov’t interference. Without that interference land prices would have dropped to their natural level, offsetting the rise in construction costs that has made post-quake development in the CBD so costly.
  2.   A variety of competing developers engage different architects and designers, each with different ideas and outlooks.
  3. Those who can deliver a good result AND get the costs down sufficiently tend to get the work. Those who can't do both tend to not get the work. 
  4. The developer then risks his (and the bank's) money to build something he thinks the market wants and can afford. If his judgment is good he makes money, and does another similar development, giving more work to his architects and designers. If his judgement is out he loses money and the mistake is not repeated.

At every step there are price signals that tell the market what is and isn’t viable. Government by its nature however is immune to these price signals. Private developers can fail of course too, but they can't do it at taxpayer expense, and they're less likely to spend a lot of money up front on somethings that not commercially viable.

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