NZ Report / Proposal Template - State Services Commission

• From a practical perspective, and in the specific context of Spring Hill and Otago,
the comment has been made to us by Department and contractor personnel that
as the construction market grew tighter, there was less willingness on the part of
the construction industry to enter into traditional fixed price contracts. The market
was becoming a sellers market. Those in the market were increasingly being able
to dictate their own terms and prices and this included, as noted earlier, a trend
toward preferring CWA.
5.59 In contrast to CWA, traditional NZS 3910 approaches to procurement are suitable
for projects where the scope and requirements of the project are well defined and where
the risks are known, understood and capable of being appropriately factored into tender
pric es . In our view, these characteristics are present across elements of the prisons
construction programme and, accordingly, we do not consider that traditional forms of
procurement should be automatically ruled out. Each project should be considered in its
own rig ht and the business case made for preferring one form of procurement over others.
5.60 On a related point, we consider that there are lessons arising from the Spring Hill
and Otago projects in terms of how far down the supply chain to carry the CWA approach.
As noted earlier, 95% of cost at Spring Hill is being incurred by CWA members. This is a
very high ratio.
5.61 CWA is management intensive. For those CWA members who are new to CWA,
there is also a considerable learning curve and associated training requirements. The
deeper CWA penetrates through the supply chain, the greater are the administrative and
management overheads and at some point, the additional costs involved exceed the
benefits that CWA might bring. In the case of Otago, we note that there are 17 CWA
members. This is a large number of firms to manage. Where CWA is implemented, it
makes sense to include the primary contractors as CWA members. However, application
of CWA becomes increasingly questionable the further below this level the CWA seeks to
probe. In our view, there may not be sufficient benefits over cost to drive down as far as
the small and even medium sized businesses that supply trade services to the project.
Selection Process
5.62 Although not part of the original brief for this review, the Commission has
requested that comment be made on the process for the selection and appointment of the
main contractors involved with Spring Hill and Otago and the appointment of the Project
Director and CMS (reflecting the key role that CMS has played in facilitating the CWA).
5.63 In the case of Spring Hill, a Request for Proposal (RFP) for provider of building
works was issued in September 2004 and Mainzeal was the preferred respondent. The
Department and Mainzeal entered into a CWA Negotiation Framework Agreement (NFA)
on 26 October 2004. Also in September 2004, the Department issued a RFP for building
works in respect of Otago and Hawkins Construction was selected. A NFA with Hawkins
was entered into also on 26 October 2004. The evaluation of the tenders was undertaken
with particular focus on performance, culture and capability. Cost was not part of the
evaluation criteria.
5.64 The Department has documented procurement processes and tender procedures.
The latest version of these is based on an original document prepared in 2002 and which,
in turn, is based on the framework contained in the Statement of Good Practice issued by
the Office of the Auditor General (that framework remains at the core of the current
processes).
Methodology and Processes: Design, Costing, Procurement and Scheduling 40