4 ms·

For a simple, but topical example, you can see the process at work with the Australian Governments' current 'stimulus' program, 'Building the Education Revoluti

by brc 16y ago

For a simple, but topical example, you can see the process at work with the Australian Governments' current 'stimulus' program, 'Building the Education Revolution (BER)'. This is a $16.2 billion dollar program to build new buildings on school grounds, nationwide in both public and private schools. With that sort of money shovelled quickly out the door, it didn't take long for reporting of corruption and rorts to show up: In some documented cases, the construction costs of simple school buildings mushroomed from $78,000 for a pre-BER quote to an actual built cost of $954,000. All this for a simple school structure. Most of the fat is in 'consulting fees' and 'variations' specified by the builders. There are many documented cases of school buildings costing in excess of $5400 per square metre - about what it costs to build a top grade office block, and about 3 times what the cost would be normally. The main problem, it would seem, is that all the contracts go to large building companies, who then subcontract to smaller builders, who then subcontract out to local people. Each person clips the ticket and adds some fat on the way through, and you end up with a building costing 3 times as much. All of this could have been avoided if you just gave the money to the school and got them to hire local tradesmen to do the job, and would have more of an effect on employment and economic activity. As it is, a large percentage of the money will go to shareholders in large construction firms. This is very similar to what the reddit post describes. The worst thing about the whole thing is, while everyone knows it is happening, and it is in the news, nobody is actually getting into trouble.

jacquesm 16y ago
Another big problem with this kind of bid is that the requirements to bring out a bid are insane, and insanely complicated, so typically only the larger companies can bid. They have full timers working on bringing out the bids, whereas a local contractor would be employing just as much people to prepare the bids as they have out building stuff.
- arethuza 16y ago
  Well, you wouldn't want the wrong people getting awarded these contracts, would you?
  - ori_b 16y ago
    Yes, that's a part of the reason that the system is so complicated - to guard against corruption - or at least, to convince observers that you're trying to. (To be fair, some of this does work. But it still makes the barrier to entry far higher.)
- Tamerlin 16y ago
  Well, if the organization putting out RFP's took the contractors' track records into account when awarding contracts, they'd end up eliminating a lot of this corruption. Instead, the fact that the big contractors routinely run FAR over budget and behind schedule, often not delivering anything and what they Do deliver is usually not up to spec, doesn't count against them when they bid for new work. If it did, companies like Lockmart and SAIC and Northrup-Grumman wouldn't be able to continue winning contracts.
robryan 16y ago
Another stimulus program we had in Australia was a hot water unit rebate which was making the units so cheap it was in the installers interest to sell as many as possible, this may have just been for sporting clubs. There ended up a situation where a club could only want 2 to 4 and ended up with about 20 hot water units which they couldn't afford to actually use due to energy costs.
arethuza 16y ago
Follow the money - I suspect it these circumstances you'll find that the "large building companies" probably had something to do with the program being created.
- brc 16y ago
  I have my theories on this, but tried to keep the post as non-political as I could manage. I am disgusted with the waste that this government is creating, doubly so given that the money is all borrowed.
nhnifong 16y ago
What makes you so sure "just giving the money to the school and getting them to hire local tradesmen to do the job" would work? aren't they just as corruptible as anyone? I think so, but I cannot imagine a foolproof way to just turn money into valuable structures without parasitism
- hugh3 16y ago
  The difference being that the school principal actually cares whether his school gets twelve new classrooms or only three, and has the time to evaluate bids on this particular project in detail. There is the potential for direct kickbacks from builder to principal, but that's relatively unlikely for various reasons.
  - CWuestefeld 16y ago
    In a situation like this, where it's already been mandated that the job will be done goes a long way to taking away any incentive that the contractor might have to bargain. Only when there's a real possibility that the potential buyer might say "forget it, that's too rich for me" can a real negotiation occur. But as is it, the contractor has a distinct advantage. Of course, there are multiple contractors bidding. But they all know that the bid will be issued, and they know that they all know. With that knowledge, even absent real collusion, you can expect them to act accordingly. Pile on top of this the regulations dictating that it must be done with union labor at the prevailing wage; that ceilings must be of a given height and doorways recessed; etc. ad nauseam. This prevents the contractor from "thinking outside the box" to streamline the process with good ideas or better leverage their own skills. So we've got contractors that are hamstrung as to their approach to the project, but otherwise having the upper hand in negotiation. What do you expect to happen?
    - hugh3 16y ago
      In a situation like this, where it's already been mandated that the job will be done goes a long way to taking away any incentive that the contractor might have to bargain. Only when there's a real possibility that the potential buyer might say "forget it, that's too rich for me" can a real negotiation occur. But as is it, the contractor has a distinct advantage. I thought the suggestion was that we hand a million dollars to the principal of each school and say "here, spend this on building and renovation". (Within certain limits, of course, and with some degree of oversight, to stop 'em from doing anything truly stupid.) Pile on top of this the regulations dictating that it must be done with union labor at the prevailing wage; that ceilings must be of a given height and doorways recessed; etc. ad nauseam. This prevents the contractor from "thinking outside the box" to streamline the process with good ideas or better leverage their own skills. afaik it would currently be totally illegal in Australia for the government to dictate that any labour had to be done by union members. The last government did a pretty good job of limiting union power and I don't think the new mob have managed to regress that far yet.
jseliger 16y ago
This kind of thing is common in the United States too. Almost no one considers how funds get from the Feds to the street, which is via some combination of direct grants, state pass-throughs, and tax breaks. The former is among the most amusing: http://blog.seliger.com/2009/02/16/stimulus-bill-passes-time-for-fast-and-furious-grant-writing http://blog.seliger.com/2009/02/16/stimulus-bill-passes-time... , since there is no way for the government to expand or contract rapidly. Fast forward to the last couple of months, and you'll find that a lot of Requests for Proposals (RFPs) that are normally issued around this time by various federal agencies haven't been issued: http://blog.seliger.com/2010/02/28/where-have-all-the-rfps-gone http://blog.seliger.com/2010/02/28/where-have-all-the-rfps-g... . Presumably, the problem is that those agencies are still digesting stimulus-related funds, which in turn is making them less able to do the stuff they're regularly supposed to be doing. Unfortunately, there doesn't appear to be a lot that can be done. If you have very few regulations or guidance, you'll get people inflating bids and embezzling the old-fashioned way. If you make the process sufficiently arduous, you have companies whose job it is to game the system and who end up taking a cut of whatever the contract is and then pass it down. One way or another, you'll get posts like the parent's and newspaper articles that describe some form or another of corruption.
- eru 16y ago
  Yes, it seems, governments can't simple hand out money. There's always some rent seeker involved, working for it. (Mostly at high rates, though.)

by brc 16y ago

jacquesm 16y ago

Another big problem with this kind of bid is that the requirements to bring out a bid are insane, and insanely complicated, so typically only the larger companies can bid. They have full timers working on bringing out the bids, whereas a local contractor would be employing just as much people to prepare the bids as they have out building stuff.

arethuza 16y ago
Well, you wouldn't want the wrong people getting awarded these contracts, would you?
- ori_b 16y ago
  Yes, that's a part of the reason that the system is so complicated - to guard against corruption - or at least, to convince observers that you're trying to. (To be fair, some of this does work. But it still makes the barrier to entry far higher.)
Tamerlin 16y ago
Well, if the organization putting out RFP's took the contractors' track records into account when awarding contracts, they'd end up eliminating a lot of this corruption. Instead, the fact that the big contractors routinely run FAR over budget and behind schedule, often not delivering anything and what they Do deliver is usually not up to spec, doesn't count against them when they bid for new work. If it did, companies like Lockmart and SAIC and Northrup-Grumman wouldn't be able to continue winning contracts.

robryan 16y ago

Another stimulus program we had in Australia was a hot water unit rebate which was making the units so cheap it was in the installers interest to sell as many as possible, this may have just been for sporting clubs. There ended up a situation where a club could only want 2 to 4 and ended up with about 20 hot water units which they couldn't afford to actually use due to energy costs.

arethuza 16y ago

Follow the money - I suspect it these circumstances you'll find that the "large building companies" probably had something to do with the program being created.

brc 16y ago
I have my theories on this, but tried to keep the post as non-political as I could manage. I am disgusted with the waste that this government is creating, doubly so given that the money is all borrowed.

nhnifong 16y ago

What makes you so sure "just giving the money to the school and getting them to hire local tradesmen to do the job" would work? aren't they just as corruptible as anyone? I think so, but I cannot imagine a foolproof way to just turn money into valuable structures without parasitism

hugh3 16y ago
The difference being that the school principal actually cares whether his school gets twelve new classrooms or only three, and has the time to evaluate bids on this particular project in detail. There is the potential for direct kickbacks from builder to principal, but that's relatively unlikely for various reasons.
- CWuestefeld 16y ago
  In a situation like this, where it's already been mandated that the job will be done goes a long way to taking away any incentive that the contractor might have to bargain. Only when there's a real possibility that the potential buyer might say "forget it, that's too rich for me" can a real negotiation occur. But as is it, the contractor has a distinct advantage. Of course, there are multiple contractors bidding. But they all know that the bid will be issued, and they know that they all know. With that knowledge, even absent real collusion, you can expect them to act accordingly. Pile on top of this the regulations dictating that it must be done with union labor at the prevailing wage; that ceilings must be of a given height and doorways recessed; etc. ad nauseam. This prevents the contractor from "thinking outside the box" to streamline the process with good ideas or better leverage their own skills. So we've got contractors that are hamstrung as to their approach to the project, but otherwise having the upper hand in negotiation. What do you expect to happen?
  - hugh3 16y ago
    In a situation like this, where it's already been mandated that the job will be done goes a long way to taking away any incentive that the contractor might have to bargain. Only when there's a real possibility that the potential buyer might say "forget it, that's too rich for me" can a real negotiation occur. But as is it, the contractor has a distinct advantage. I thought the suggestion was that we hand a million dollars to the principal of each school and say "here, spend this on building and renovation". (Within certain limits, of course, and with some degree of oversight, to stop 'em from doing anything truly stupid.) Pile on top of this the regulations dictating that it must be done with union labor at the prevailing wage; that ceilings must be of a given height and doorways recessed; etc. ad nauseam. This prevents the contractor from "thinking outside the box" to streamline the process with good ideas or better leverage their own skills. afaik it would currently be totally illegal in Australia for the government to dictate that any labour had to be done by union members. The last government did a pretty good job of limiting union power and I don't think the new mob have managed to regress that far yet.

jseliger 16y ago

This kind of thing is common in the United States too. Almost no one considers how funds get from the Feds to the street, which is via some combination of direct grants, state pass-throughs, and tax breaks. The former is among the most amusing: http://blog.seliger.com/2009/02/16/stimulus-bill-passes-time-for-fast-and-furious-grant-writing http://blog.seliger.com/2009/02/16/stimulus-bill-passes-time... , since there is no way for the government to expand or contract rapidly. Fast forward to the last couple of months, and you'll find that a lot of Requests for Proposals (RFPs) that are normally issued around this time by various federal agencies haven't been issued: http://blog.seliger.com/2010/02/28/where-have-all-the-rfps-gone http://blog.seliger.com/2010/02/28/where-have-all-the-rfps-g... . Presumably, the problem is that those agencies are still digesting stimulus-related funds, which in turn is making them less able to do the stuff they're regularly supposed to be doing. Unfortunately, there doesn't appear to be a lot that can be done. If you have very few regulations or guidance, you'll get people inflating bids and embezzling the old-fashioned way. If you make the process sufficiently arduous, you have companies whose job it is to game the system and who end up taking a cut of whatever the contract is and then pass it down. One way or another, you'll get posts like the parent's and newspaper articles that describe some form or another of corruption.

eru 16y ago
Yes, it seems, governments can't simple hand out money. There's always some rent seeker involved, working for it. (Mostly at high rates, though.)