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Cheap and nasty

Written By: - Date published: 8:49 am, August 17th, 2013 - 36 comments
Categories: economy, housing, national, schools - Tags: , , ,

So, the Nats finally work out what every project manager, and indeed most householders, already know. The “cheapest” tender is not necessarily the best tender (or the cheapest, in the long run). It is to weep:

Huge cost of rotten school alters Govt views on tenders

The horrendous cost of repairing a leaky Auckland school is changing the traditional Government view that the cheapest tender is the best tender.

The Ministry of Education has paid $19.5 million to repair Macleans College, which has had to remove 23 rotten buildings from its Bucklands Beach site. … More than 300 schools and 800 buildings nationwide have been affected at a total cost of at least $1.5 billion. …

The known cost of the entire leaky building saga is $11.2 billion, but the true cost is believed to be at least twice that figure


These costs had prompted the Government to review how it chooses tenders for taxpayer projects. “(Macleans) was the worst contract we’ve ever done and yet we got it for the cheapest price. ‘Cheapest price wins’ is a mentality that we’re changing,” he said.

Economic Development Minister Steven Joyce proposed new rules for Government procurement in April. He said the emphasis would shift from who can deliver the lowest costs to who can deliver the best value for money and other direct financial benefits over the life of a contract.

Imagine – just imagine – if the Nats had managed to work this out before trashing over 100 jobs at the Hillside Workshop when they went with a slightly cheaper Chinese rail tender.

Imagine – just imagine – if the Nats could consider the long terms cost and benefits over the whole range of policy portfolios. Most crucially the environment. Climate change is the leaky building fiasco on a global scale, and the Nats are still stuck with the cheapest tender.

36 comments on “Cheap and nasty”

  1. wyndham 1

    Do these structural failures not go back to the disastrous National govt. policy of removing ‘controls’ on the type of timber used? Which allowed the use of untreated pine in so many buildings and that has ended up costing taxpayers billions of dollars?
    It is amazing to me that when a massive (yes,massive) govt. cock-up on this scale occurs, there is just a shrug or two, nobody accepts blame, the minister of housing apportions cost of repairs to both individuals and taxpayers – – – and it’s all over. No responsibility. No sackings. It’s a strange system!

    • BM 1.1

      Pine in buildings has never really been treated

      It wasn’t the timber that was the issue it was the building designs and systems that failed.

      The only timber that wouldn’t have rotted would have been stuff H3 rated and upwards and that level of timber preserving has never been used in housing construction.

      If I remember correctly timber in houses was done to a H1 standard, which was mainly to stop borer not repel moisture and water.
      Kiln dried timber was supposed to achieve this level of protection without the need of applying treatment.
      By kiln drying the timber the ligin in the wood sets hard which makes the wood tough to eat for the borer.

      Timber used in the construction of houses was never ever designed to get wet.

      • wyndham 1.1.1

        Then why did the problem not arise prior to the removal of controls ?

        • BM

          Systems changed, new products were tried.

          Pretty much all houses that failed were of that monolithic look and had the exterior cladding directly attached to the timber framing.
          Unfortunately that was a popular architectural style which was the reason we had so many leaky buildings.

          There has been cases of houses with rot prior to the removal of controls, like those Tudor styled houses you used to see.
          I’ve heard of quite of few cases of people pulling off the cement board and finding rotten framing underneath or there was a style of cheap house back in the 80’s where the flooring panels failed because they got wet and turned to mush.

          • RedLogix

            But the point being that prior to the 1992 Reforms (based on the ideological idea that the industry and market would know how to deliver the best result) the kind of construction you describe was simply not permitted.

            While I agree that there was scope back in the day to carefully expand the range of prescribed methods, what they did instead was more or less throw out the old book and open the door to a flood of wild-west experimentation.

            Result = $30b fuck-up.

            The known cost of the entire leaky building saga is $11.2 billion, but the true cost is believed to be at least twice that figure

            That was just the figure in the private and commercial sector, thought to be actually closer to $22b It was estimated that there was at least another $8-11b of risk in the public sector as well. Hence my very rough $30b)

            • BM

              Thought this was quite interesting. good brief summary for people who may be interested in the leaky homes disaster


              Thought it was quite interesting that it was 1998 when kiln dried untreated timber was first used always thought it was a lot earlier.

              • ghostwhowalksnz

                The stucco look came in earlier than that, along with parapets, removal of overhang and balcony’s clad with monolithic.
                Another factor was the introduction of ‘competition’ in the issuing of building consents, all of which dissapeared once the chickens cam home to roost leaving councils ( and ratepayers) as the only ones who couldnt run away

            • Colonial Viper

              But the point being that prior to the 1992 Reforms (based on the ideological idea that the industry and market would know how to deliver the best result) the kind of construction you describe was simply not permitted.

              The fact is that markets are useless for governing indirect relationships between multiple parties, particularly in the instance where counter-party risk is essentially hidden for a time or effectively traded on to an indirect party. The typical result: the private sector profits then walks away, the consumer loses, and the public sector has to pick up the pieces.

          • One Anonymous Knucklehead

            “Systems changed…”

            Or, as Wikipedia puts it “The Building Act 1991, which came into effect about 1994, changed buildings controls from a prescriptive system to a more self-regulated regime. In addition, the Government dropped the apprentice training system for builders and the related building trades.”

            So, they deregulated, with the inevitable consequences that opponents of the bill predicted, and its supporters are still in complete denial about, and still determined to infect everything and everybody with this delusional brain disease called the “high trust” regulatory model.

            • BM

              Did a lot of damage the fourth Labour government, shame Lange was such a hopeless PM and let Douglas and the rest of the Act members do whatever they wanted.

              • One Anonymous Knucklehead

                Shame the incoming National government went even further than them too.

                And shame on you for supporting them.

                • BM

                  Did lead to MMP though, you’ve got to be happy about that .
                  Without National running rough shod over the peoples wishes, MMP would have never happened.

                  • Colonial Viper

                    yeah this nation is damn lucky with the MMP thing. Its going to prevent a lot of the very bad problems we see with UK and US politics, although its hardly a bed of roses itself.

                    I think the party vote threshold needs to be dropped to 3.5% however. But usual story, I do not expect either of the major parties – or even the Greens – to support such a move nowadays.

                    • BM

                      Yeah I voted MMP at the time because I was pissed at the arrogance shown by National and Labour.
                      The big “Fuck you plebs” mentality shown by the major parties of the time had to change.

                      My only complaint is having wankers like Dunne and Peters holding the balance of power and the major parties having to bow and scrape to these insignificant little turds.

              • ghostwhowalksnz

                What part of who was in government in 1991 dont you understand

        • Draco T Bastard

          Six months in a leaky house

          That addresses the history of treated timber in houses in NZ.

  2. RedLogix 2

    Contracting in this country is a dog-eat-dog, shit-fight. For the most part.

    Before the contract is signed the client looks to screw the most out of the contractor for the lowest price. After the contract is signed the contractor looks to screw as much as possible out of the client. If it all turns to custard they both look to dump as much risk as possible on the subbies.

    All founded in some idiotic belief that the invisible hand of the free-market magically delivers the best engineering. In fact in my experience the lowest price invariably delivers the lowest value, highest risk outcome.

    In the UK over the last decade a number of alternative and more intelligent contract forms have become more popular, eg http://www.ice.org.uk/ICE_Web_Portal/media/northeast/NEC_13-03-12.pdf or http://www.neccontract.com/about/index.asp

    The NEC system is based on the idea that sound Project Management principles have to be the core of the contract, not legal or commercial ones. If the project is conceived and managed correctly …then the execution, delivery and commercial outcome will be correct.

    • Colonial Viper 2.1

      Oh wow, project and operations management is actually important for real delivery of real value, who would have thought.

  3. pollywog 3

    And now central govt is looking to play fast and loose with cutting local body development levies.

    Councils will have no choice but raise rates or sell more assets. It’s a lose lose all round for the citizenry and win win for developers and govt looking to prop them up while hoping to fix their hands tighter on council levers.

    • Greywarbler 3.1

      Interesting that ACT was behind the local government reorganisation. This outfit is a subversive entity being enabled to undermine our whole system of public control of government and maintaining reliable and fair procedures and standards. They have found an entry point to capture and control our democracy and our commons. Douglas started in Labour, was part of a subversion gang, started ACT and continued under the system of elected people’s choice political parties. Suckers you can always find when you’ve got money and speak confidently.

      Actually ACT is a terrorist group working under the umbrella of a democratic system but they are like borer beetles, a hole here and there eating away behind the walls and carpets till the place sags and falls when given a good kick. That’s their intention, they just assume a mask of concern like the French secret service operatives.

  4. BrucetheMoose 4

    When the National led government started on to downwards path of a deregulated building industry in the early 1990’s, they were clearly warned by certain industry experts and advisors, that there would be eminent risk to building standards , not only in relation to buildings, but across the construction industry as a whole. They completely ignored this advice. I personally remember one expert predicting major problems arising in ten years time. That was in 1991. Fast forward to 2001 -the Leaky Buildings disaster finally comes to the forefront of public attention.
    The Labour government spent most of it’s term trying to remedy the situation. Starting with major review of the entire building industry to determine what the fundamental problems effecting the industry were. The Building Industry Authority, the supposed regulator of the industry, was found to be inefficient and under resourced. This was disbanded and the governance brought under the new Dept. Building and Housing. The NZ Building Act and Building Code were deemed out of date and were strengthened. Under these Acts, Local Building Consent Authorities were brought into line, requiring them to be more rigorous in the quality of auditing applications for building works and in the subsequent inspection process.
    The Labour government introduced the Modern Apprenticeships Programme, an attempt to raise skills and overall attitudes, but with nearly a decade of neglect to training levels behind the industry and training institutions, this was never going to be a quick fix.
    There were many other aspects effecting the building industry that were, or needed to be addressed, the whole tendering process being one of them. This has been one of hardest to deal with, as the lowest sum generally rules. However, this was one of the key issues identified in the early stages when analysing the underlying problems effecting the building industry. More than twenty years later the government finally starts to get it – maybe.

  5. cricklewood 5

    It all comes back to that old adage that you get what you pay for. If you get a collection of quotes and ones is cheaper by a big margin they either made an error or they Will plan to come back for more. Its hard to have sympathy for people who work on lowest price.

    • RedLogix 5.1

      I could produce a book full of examples cricklewood.

      I can produce a two real examples that killed people. Despite explicit written warnings.

      In both cases dumrse management destroyed their own businesses. But as usual, white collars fuckup, blue collars get fucked. (Yes that is meant to be as bitter as it sounds.)

  6. jaymam 6

    Macleans College was opened about 1980, so would have had borer-resistant framing timber. Obviously there was something wrong with the cladding or flashings for the timber to rot.
    Remuera Intermediate School was built around 1953 and much of the untreated framing was riddled with borer, but not rot that I could see.
    Around 1992 my architect was scathing about the new cladding designs that other architects were starting to use.
    Of course it is not necessary to have rot-proof timber in the framing. If the framing gets wet there are other major problems.

    • BM 6.1

      This, if the timber has got wet obviously something has gone drastically wrong.

      • joe90 6.1.1

        This, if the timber has got wet obviously something has gone drastically wrong.

        Timbers have always been getting wet, remove any window from an old weatherboard bungalow and you’ll find sound but water damaged jack-studs, lintels and bottom trimmers, but the building methods and exterior cladding of the day allowed enough ventilation to dry the framing.

        Modern design and methods – monolithic with little or no eaves, poorly thought out balustrade solutions, a reliance on compound seals rather than physical barriers and plain old piss poor skills all allowed excess moisture ingress.

        Once things got wet modern materials and their hermetically sealed finishings ensured that the moisture would never escape which in turn allowed the likes of non-traditional enemies like stachybotrys to thrive on kiln dried timbers which were never treated for infestation.

        (the reason for not treating was that kiln drying made timbers too hard for the traditional enemies to sink a tooth)

        And again, because of the well sealed systems used, moisture was able to sit for long enough to actually rot timbers which were never supposed to stay wet.

        (kiln dried timbers were always expected to be able to withstand reasonable cycles of wetting and drying)

    • ropata 6.2

      An old tradesman will tell you that all houses leak, moisture always finds a way to creep in. It’s a matter of how much, and the crucial part is allowing the moisture to exit. As he put it, allowing houses to “breathe”. Sealing every corner with silicone is not a substitute for proper joinery.

    • alwyn 6.3

      The original college did open about 1980, as you say.
      However there were new houses, or whanau opened in 1997, 2001 and 2003.
      Does anyone happen to know which of the Whanau at the school are affected?
      If it was the most recent two it would have been under a non-National Government of course.

    • Draco T Bastard 6.4

      There’s a difference between borer an rot. Rot is caused by fungus which H1 standard is not proof against although it does help somewhat.

  7. Ed 7

    “He said the emphasis would shift from who can deliver the lowest costs to who can deliver the best value for money and other direct financial benefits over the life of a contract.”

    Of course one way to be able to assess costs over the life of a building, is to make sure the contract covers that period, by for example making the contract into something like a PPP, so that the builder is responsible for fixing mistakes. That works well for ensuring an ongoing income to the preferred winner of a tender, who can of course always fold and start again under a new name if the maintenance costs get out of hand – it seems every statement of National has to be read from a perspective of seeing how private companies can be gifted money from public funds . . .

  8. Greywarbler 8

    Nick Smith took on this untreated framing problem. Can it be that he has some creds from this?

  9. Molly 9

    I understood that Carter Holt Harvey made a concerted ( and successful) lobby to get the standards changed. Even remember a conversation at the time with a builder predicting dire outcomes from the change.

    Link to documentary article: http://www.theaucklander.co.nz/news/blasted-rotters/1060709/

  10. srylands 10

    “Imagine – just imagine – if the Nats had managed to work this out before trashing over 100 jobs at the Hillside Workshop when they went with a slightly cheaper Chinese rail tender.”

    It wasn’t a “bit cheaper”. On the locomotive tender Hillside came 6th. Across all the products with hillside there were problems with the necessary confidence in quality and delivery times.

    The only way Hillside would have worked would have been via subsidies – i.e the “corporate welfare” that is decried here.

    The idea that New Zealand can produce trains competitively is even more ridiculous than the idea that we can produce motor vehicles.

    Back to the main post – government agencies do not (and never have) simply chosen the cheapest tender. Sometimes the most expensive bid is chosen because it wins on the other metrics (quality/timeliness).

    The leaky buildings fiasco was a regulatory failure around building standards. It was not a problem with tendering processes.

  11. tracey 11

    Mcleans college had advice that the problem coukd be dealt with for much lesz but the property manager was told by higher up to notvtalk about it cos this way they could get new buildings.


    given all buildings leak having closed systems with utkd made no sense and wouldnt have got past an apprentice raised eyebrow in 1998.

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