Public works projects face challenges in Japan

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.

Lack of skilled workers

With construction demand growing, the prices of construction materials are surging. According to the Construction Research Institute, the market price of plywood for concrete formwork in October went up by 26 per cent in the Tokyo area and by 22 per cent in the Osaka area compared to the same month last year. The market price of wide flange beams used for the framework of buildings in October rose by 14 per cent in Tokyo, Nagoya and Fukuoka and by 16 per cent in Osaka and Takamatsu compared to the same month last year.

A shortage of construction workers is also accelerating. It is becoming particularly difficult to find and secure skilled workers, such as mould makers and rebar processors. The ratio of job offers to job seekers in August was 0.95, meaning that there were fewer job offers than job seekers, according to the Health, Labor and Welfare Ministry. However, the ratio of job offers for engineers in construction, civil engineering and surveying was 3.37, meaning that there were roughly three job offers for each job seeker.

Disaster areas affected

Unsuccessful bidding is also hampering reconstruction in disaster-hit areas. No deal was made, for example, on 121, or 24 per cent, of the 509 projects for which Miyagi Prefecture conducted open bidding from April to September.

No companies participated in the bidding for a ¥1 billion-level project to rebuild a tsunami-wrecked coastal levee on the Oshika Peninsula of Ishinomaki. A construction company in the prefecture said even if there was work, it could not take it, as there was a risk of suffering a loss on the project.

Fukushima Prefecture opened up bidding in July on the construction of 20 units of public disaster housing in the Hiwada district of Koriyama, but no deal was reached. As continuing the bidding process was expected to lead to a delay in constructing the housing, the prefecture changed to a system in which it could form a contract with any construction company in a short period of time.

The winning company was expected to be decided on Thursday.

Local govts' plans thwarted

As a transitional measure regarding next April's increase in the consumption tax rate, contracts concluded by the end of September were allowed to use the current 5 per cent rate.

However, the expectations of many local governments that aimed to conclude early contracts were dashed.

The city of Kamogawa, Chiba Prefecture, opened bidding in August and September for a project to improve the quake resistance of the city government offices, but no deal was made due to an insufficient number of bidders. Because the consumption tax will rise from 5 per cent to 8 per cent, the price is expected to rise by about ¥44 million to ¥45 million in the third round of bidding, announced this month and with a higher cost estimate.

Delayed construction and higher construction costs will increase the burden on local governments with financial difficulties. Also, if people, materials and money concentrate in Tokyo for construction related to the 2020 Olympic and Paralympic Games, construction may be left undone on necessary public facilities and infrastructure in regional areas.

Yoshitsugu Kanemoto, a professor of urban economics at the National Graduate Institute for Policy Studies, said: "Construction will continue to increase in areas including reconstruction projects and the Tokyo Olympics. However, the rise in demand will be temporary, and local governments should determine whether construction is immediately necessary and plan accordingly."