Public works projects face challenges in Japan

Public works projects face challenges in Japan
Akita municipal government building.

AKITA, Japan - Many public works projects across the country are facing challenges in obtaining successful bids, The Yomiuri Shimbun has learned.

Driven by reconstruction projects after the Great East Japan Earthquake and economic recovery, construction of private-sector buildings and houses has been accelerating, which has resulted in a price hike for construction materials and a shortage of workers. Because of this, construction companies are backing away from making bids in public works projects, believing that winning the bid would not be profitable when the cost estimate set by local governments is taken into account.

There have even been cases in which bidding processes for facilities to be used for the 2020 Olympics and Paralympics have not gone smoothly.

This trend may have serious repercussions in the future.

Seeking bids 3 times

The city of Akita plans to reconstruct the municipal government building. But the project is not progressing smoothly. When bidding was opened in June, all five consortiums nominated as bidders declined to bid after learning their cost estimates were higher than the cost estimate given by the municipal government. In July, the municipal government called for bids again, setting the cost estimate about 10 per cent higher, only to find there were no bidders. There will be a third tender for the project on Nov. 15. The scheduled date for the new building's completion is expected to be delayed from the initial schedule of summer of 2015 to March 2016.

A cost estimate is set by the commissioning party of a public works project-either the central or local government in most cases-ahead of launching a bid. It is calculated based on the basic price of materials set by the commissioning party and the labour costs set by the government. The successful bidder is the one who has offered the lowest bid price among those whose bid prices are lower than the cost estimate.

"Even if there is a divergence between [our cost estimate and what turned out to be] the correct price [which includes the latest prices of construction materials], as the commissioning party of a public works project, we can't use a groundless figure," said Shuetsu Ishii, the city's deputy mayor.

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