13 Jun 2016

Steel contract rules followed, says Govt

8:11 am on 13 June 2016

Economic Development Minister Steven Joyce has given an assurance the Government encourages all its agencies to follow the rules when awarding building contracts.

The main entrance of Christchurch Hospital

The main entrance of Christchurch Hospital Photo: RNZ / Diego Opatowski

Steven Joyce's assurance comes in the wake of concerns expressed about the steel-making contracts awarded for a number of government contracts including the contract for the Acute Services Building in Christchurch.

The contract to supply the steel for the single largest project in the Christchurch rebuild has gone entirely to Thai Herrick, a US-owned steel fabricator in Thailand.

That is on top of Thai Herrick also winning the two other biggest steel contracts in this country for some time - the SkyCity Convention Centre and Auckland's Downtown Precinct. Thai Herrick is in a joint venture on those with a junior New Zealand partner Culham Engineering.

Mr Joyce said he did not have ministerial responsibility for the hospital project but the Government did have set of principles when it came to awarding contracts.

"We will be encouraging a DHB to do exactly what we encourage, which is to focus on the whole of life cost of their building projects and to achieve the appropriate quality for the whole of life at the best possible price and that's what we do across all government procurement," he said.

Mr Joyce said an "open approach" had to be taken to tendering but he was "completely unaware" of the contracting relationships for the hospital build.

He negotiated the convention centre deal that gave SkyCity greatly increased gambling concessions; SkyCity then chose Fletcher Construction as the main contractor, and it chose Thai Herrick-Culham's steel bid.

Steven Joyce at bridge run.

Economic Development Minister Steven Joyce Photo: RNZ / Alexander Robertson

Government's Principles of Procurement rules

Unlike the private convention centre build, the government's own Principles of Procurement apply to the hospital build.

These require that the New Zealand economy and jobs must be taken into account when awarding the main contract.

A DHB governance group gave the main contract to an Australian company CPB Leightons, which is the subject of corruption probes in Australia.

It is unclear how the government's principles are meant to filter down from the main contractor to the subcontractors, such as for steel, who actually do 80-90 percent of the work on a project.

Multiple New Zealand steel industry sources say the principles are not reaching down to them at all and they are being undercut from offshore.

Mr Joyce said if companies had concerns they should call him up.

New Zealand companies concerned

Two of those companies with concerns are D & H Steel and Grayson Engineering.

They told RNZ News on Wednesday that both the government and Fletcher Construction encouraged them to gear up the Christchurch rebuild and the Auckland work, and that now they will be forced to try to take smaller jobs off smaller fabricators. The loss of business to Thailand triggered a debate in Parliament.

Mr Joyce said that in relation to the Convention Centre, "from my observations of the media coverage, it looks like there was a competitive bid situation and one or two of the other companies that didn't succeed are critical of the company that did".

He was asked if he knew how much D & H Steel, and Grayson Engineering, had invested in helping improve steel quality standards in New Zealand, and replied: "No, it's not something for me to assess either because you are in a competitive bidding situation, you don't have a minister going around trying to determine who they want."

More investment in steel standards

Heavy investment to raise steel standards was triggered by the Southland Stadium collapse in 2010, where bad welds were a big factor.

The local steel companies, in concert with the Heavy Engineering Research Association (HERA) were encouraged to do this by the government. Eighteen months ago they launched a whole new steel supply certification scheme based on European standards.

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Heavy investment to raise steel standards was triggered by the Southland Stadium collapse in 2010. Photo: 123 RF

Two thirds of local fabricators are expected to belong to that by the end of this year.

Mr Joyce said he did not know about this investment in raising standards.

The cost of setting up and complying with these high quality standard is one factor, along with others such as higher wages in this country, that count against local fabricators winning bids when main contractors are driven largely by price, even to the extent of sourcing steel from unreliable supply chains in low-cost countries such as China.

Public agencies are meant to give less weighting to price, say around 55 percent against private contractors at 70 percent.

Another improvement in the steel quality system has been development of an evaluation tool aimed at helping main contractors like Fletcher Construction, and CPB Leightons, weigh up quality versus price when awarding steel contracts.

Mr Joyce did not appear to know about this tool, but his office later contacted RNZ News to say that just last week, the government procurement group which is part of the Ministry of Business, Innovation and Employment (MBIE), was told about the tool by an industry lobby group.

His office called this a "new tool".

In fact, it was introduced three years ago, HERA says a single key member of the government procurement group went to a seminar about the tool.

"It is certainly accurate to say that for some considerable time the MBIE procurement group did not see a priority in providing guidance in respect to the mandatory rules implementation and in particular the balanced decision-making requirement," HERA director Wolfgang Scholz said.

"Just imagine a new traffic rule would become effective and no guidance would be given relating to its application? Absolute chaos would result and this is the case with some of the procedures around steel."

Steven Joyce was asked what, if any, contribution Thai Herrick had made to New Zealand's improved steel certification system.

He said that was not for him to determine.

He also said government procurement rules had been beefed up in recent years to ensure buildings lasted a long time and were made from quality materials.

Asked how that fit with the experience on the Huntly Bypass, revealed by RNZ News last week, where 1600 tonnes of cheap steel from China is too weak to hold up four bridges and forced a redesign, Mr Joyce said: "Again, you are asking the decisions of the wrong Minister."

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