Wednesday, 23 May 2012

Street Spirit (Fade Out)

Roading New Zealand, a consortium of roading contractors is calling for radical change, their words, for the way roading work is divided up and managed.
Here's the written version from Radio NZ
And here's the audio clip, also from Radio NZ
What they are proposing is the bundling together of contracts across several councils, and longer contract terms.  Cost savings of 20% are offered as a carrot.

I understand why contractors would want to have the business from several adjacent councils.  They can reduce the office staffing requirements, and get their staff in the field to cover wider areas.
The thing is that councils can already get together and procure the services of a contractor.  In some areas, such as Southland, and Bay of Plenty, they already do.
In other areas they choose not to.  There are a whole lot of reasons why.  These could be to support local employment and business; having a contractor for your district pretty much forces the contractor to have a depot in the district, and for the majority of the staff to live in the district, and this has spin-off benefits for plant hire, light industry and commercial business in the district.  Or it could be because the relationship between the contractor and council is closer, which increases accountability.
Contractors are at best ambivalent about the communities they work in and will play lip service, when required.  Accountability is generally perceived as detracting from the bottom line (profit), so is best minimized.

I understand why contractors would want to have longer term contracts.  Tendering for contracts is costly, and there's no guarantee of success.  And long term contracts look good on financial reports; they are the next best thing to money in the bank.
The thing is that councils can already determine the length of maintenance contracts.  There are plenty of good reasons for contracts being the length they are, and they vary around the country.  They include changes to work methods and materials, the need to keep the contractor motivated and the idea that the longer the contract, the less chance their is of any viable competitors surviving in the area until the contract is renewed.  In reality what happens when a roading maintenance contract changes hands, the field staff transfer from one employer to another and do the same job with different stickers on the side of their trucks; it's the managers that change.

The big picture is Roading New Zealand wants central government to be even more proscriptive with local government, to benefit roading contractors and by reducing the input of the people who are paying for the service.  There is no way I can support this.

Many of the big roading contractors are foreign owned, and the profits go to overseas (mostly Australian) shareholders.  As many are privately owned, there are only a few sources of information on the profitability of this kind of work on the internet.  From what I can see, they make some profit, but not a huge amount.

So, where could the cost savings come from?  I can find three areas, reductions in service (through fewer staff in the field), reduction in staffing costs (through attacking working conditions) and reduction in input costs.  How could this go wrong?  Where do I start?
Input costs are pretty effectively screwed down, there's not much room to move on costs of aggregate.  Steel prices are determined by the world market and there's not much room to negotiate them.  The price of oil, which powers almost all the plant, and is a key component of sealing coats (as bitumen) is predicted to rise.  So the 20% won't come from there.
Reducing staffing costs by attacking working conditions is foolish.  Skilled road workers are in demand in places like Australia, which is a couple of hours away by plane and popular with about 1,000 people every week.  Attacking working conditions will only exacerbate the diaspora, reducing the pool of available talent. So no cost savings there, either
Which leaves us with reductions in service.  Clever contractors will achieve this by implementing solutions that defer the full costs beyond the end of their contract.  Like a household appliance that breaks down a month after the warranty expires.  And we will, collectively, end up with another maintenance backlog.  On the other hand, dumb contractors will just do stuff badly, or not at all and, like the present government, try to muddle through.
In short, the 20% isn't there.  It's an illusion that's only there to get Roading New Zealand what they want, at the expense of the rest of the country.

A radical solution would involve looking at how road maintenance is procured and how much of a role the private sector should play when its involvement results in profits going overseas and the creation of the illusion of competition requires all sorts of wasted effort and duplication.

A really radical solution would involve looking at how transport fits into the society we have at present, and how it will fit into the society we will find ourselves in in twenty or fifty years time.

What Roading New Zealand proposes is minor tweaks, for self-serving reasons.

Radiohead - The Bends, 1995

No comments:

Post a Comment