The idea of bundling performance contracts had an interesting beginning – it started with a Hutt Valley contractor and his son. By ALAN TITCHALL.
TODAY’S CLIENT-CONTRACTOR tools of asset management, performance-based contracts, and quality assurance had a unique start with Snow Olsen, of Hutt Valley-based contractor Olsen’s Civil Works (a company that operated between 1951 and 1985).
It’s a long story, as told by that contractor’s son, Chris Olsen, so make yourself comfortable and read on.
Specialising in roading, subdivisions, water supply, gas pipelines, power and phone cabling, and sewage, Snow Olsen was an innovative contractor in his day, having been one of the first to use trenchless technology through pipe ‘jacking’ underneath railway embankments and motorways in New Zealand in the early 1970s. He also specialised in constructing pipelines under large rivers and was very involved in industry politics being Wellington branch chairman of the Contractors Federation in the mid-1970s.
His son Chris started working part-time with his father at the age of 16 and a few years later, was sent to university.
“Dad believed future contracting companies needed to be run by engineers. I didn’t necessarily want to be a civil engineer but, in the end, I did get my degree [Hons] after my NZCE,” says Chris.
“He also said I had to go and work with the client [Lower Hutt City Council] for three or four years to understand how they think. Then I would be well positioned to take the family business to the next level.”
Chris never did take over the family business – he stayed in local government, first with the Lower Hutt City Council, then Wellington City Council, Transit NZ, Transfund NZ and, finally, Roading NZ, putting his father’s theories to work.
“One of the things Dad had taught me was about the ‘waste’ when local authorities had jobs designed that weren’t practical. This often meant contractors were building things that weren’t optimal or efficient. Things could be done smarter.
“When I took over as manager of the Wellington City Council roading workforce in the mid-1980s [at the age of 30] I focused on making a difference by doing things better – both in terms of the workforce’s productivity and also by being one of the first in the country to embrace ‘asset management’.
“Up to this point local government and the Ministry of Works had done roading work themselves, before the government legislated and required this work to be contracted out. We set about disestablishing the council’s roading workforce – about 150 workers – and my team of five engineers developed and let 30 contracts to outside contractors over 18 months.
“It only took six months to develop a road maintenance competitive contracting market in Wellington among existing contractors, whom I knew through my dad.
“Around this time we also let the first performance-based contract in roading [for chip sealing].
Previously, a council engineer would do the seal design and specs, and the contractor would simply carry out the build. In 1991 we let the first ‘design and build’ contract for chip seal contracting in New Zealand – it was a three-year contract and, because it was so new, we had to work very closely with the contractor – just like a partnership. A lot of what we learnt was used in Transit’s [the transport agency at the time] first P17 specification for performance-based chip sealing.
“As time went by we ‘bundled’ those 30 contracts [performance-based where possible] to get economies of scale and make it easier for everyone. We also made them up to three years in length rather than annual, which made it easier again for us and helped the contractors plan.”
This new model for council work also helped to provide ‘facts’ around political issues and controversy. Sue Kedgley, a Greens’ councillor at Wellington City at the time, was not happy that contractors were using chemical weed control such as Roundup and pushed for the use of ‘hot water’ non-toxic weed control.
“We didn’t know whether it would work, or what it would cost, so I developed a performance-based contract for weed control and split the city in half – one half using chemical control and the other half hot water,” Chris recalls.
“We went through the bidding process and after a year I had to report the price differences and whether the hot water method worked.
“It worked, but the cost of the hot water treatment worked out 70 percent more. I thought – how do I decide if this is acceptable? I commissioned a ‘willingness to pay’ survey among our ratepayers asking if they were prepared to pay a range of percentage increases for non-chemical control. Despite 80 percent of ratepayers in an original council’s survey wanting environmental solutions only two percent were prepared to pay the extra 70 percent for non-chemical spraying.
“You can imagine what my report said? Supported by Kedgley, the media got involved. Although I had training to handle a ‘Holmes’ interview when at Transit NZ, I really learnt to handle the media during some fairly adversarial times at Wellington city.”
Another learning curve was dealing with the contracting industry when Wellington City Council sold its asphalt plant at in Ngauranga Gorge (Kiwi Point) to Bitumix around 1990.
“The plant badly needed capital for upgrading so it was a necessary sale, but part of the agreement with Bitumix stated that any contractors working within Wellington City boundaries had to use asphalt from Kiwi Point for the next 10 years.
“You can imagine how that went down among contractors at the time.”
Chris says although he had obtained special dispensation from Transit, the move proved so contentious among roading contractors that he decided to personally explain the situation via a meeting with John Dawson, the chief executive of the Pavement & Bitumen Contractor’s Association (the forerunner to Roading NZ).
“I also approached Transit and requested the person who approved the variation to accompany me to this meeting, but they sent their communications person instead.
“We met with John Dawson in this very meeting room [our interview was conducted at Margan House, which used to house both the PBCA and Roading NZ] and I was so surprised that he was so accepting over the decision.
“I realised then, that the association as well as Transit had helped us. It gave me an appreciation of how an industry association can work to resolve issues.”
In the middle of the chemical versus hot water spray episode at Wellington City Council, Chris was recruited into Transit as its national programming and funding manager for roading and passenger transport.
“Robin Dunlop who ran Transit decided, in 1994, to set up a new division called ‘programming and funding’ [these days, within the NZTA, it’s called ‘planning and investment’].
“Robin set up this division to ensure state highways and local authorities were funded equally and transparently. I got the divisional manager’s job.
“My team and I put together the Programme Funding Manual which rationalised the funding policy criteria for both state highways and local roads evenly and fairly so, from an engineer, I found myself an economist and policy manager which I really enjoyed.”
He also took his Dad’s notion that “contractors know how to do it best, practically” and applied this to bus operators to solve the problem of poor quality bus services through the country. Working by consensus with bus operators and regional councils he changed Transit procurement requirements (CPPs) to bring quality into the tender evaluation process and to provide financial incentives for innovation.
The Transfund years
About a year after Chris joined Transit the government legislated to set up a new funding agency called Transfund NZ – based on the Funder/Provider Split principle. This was the same principle that suggests, for economic efficiency, contractors carry out local authority physical work rather than councils. Transit became Highways (the two entities were merged as the current NZTA about 10 years ago).
Chris Olsen carried on as programme and funding manager at the new Transfund, while the top job went to a National Party man. Chris says that throughout his entire career he has been apolitical, which has enabled him to work with ministers from both sides of the House.
Remembering his father’s words “whatever you were doing could be done smarter and better”, Chris says he led a working group of Transfund staff, top local authority asset managers and a consultant to build, for the first time, a maintenance funding model to be applied to each local authority based on the drivers of road maintenance and basic levels of service.
“My regional staff worked ‘collaboratively’ with local authorities, with minimal negativity or banging of tables.
“I remember every local authority in the South Island asked for less money than they had the year before, and we moved $30-$40 million of saved funding to where it was needed.
“In the late 1990s I made asset management planning a condition of this funding. And, much to Transit’s horror, I introduced ‘strategic benefits’ into the Project Evaluation Manual. The agency didn’t want them in because of its focus on ‘efficiency’ (benefit cost analysis), but I could see this was the way of the future.
“Transit argued that you couldn’t quantify ‘strategic benefits’. I said, if we put it into the manual the concept would develop over the years and, 10 years later, what is the current NZTA funding criteria? Strategic fit, effectiveness and efficiency of the solution.”
The Roading NZ years
Mid 2000 Chris left Transfund to become chief executive of the Pavement and Bitumen Contractor’s Association. Three years later Roading New Zealand was formed from the old PBCA with Chris as its CEO.
“The new association was formed to create a political lobby group with the aim of moving the contracting sector forward and relating more closely with the client.”
Chris was joined by Lyn Kuckenbecker (now accounts manager at CCNZ), and Alan Stevens (now CCNZ technical manager).
One of his first jobs was to capitalise on the old PBCA’s technical strength with new committees and help develop performance-based specifications for Transit.
“This went back to my Dad’s old comment that ‘contractors often know how to do it best, practically’, and our whole philosophy was performance based. The client [Transit] specified ‘what it’ required and the contractor bid according to ‘how’ they would do it – using quality systems as assurance for the client.
“And it’s why, more recently, Roading NZ supported the NZTA performance based NOCs and their bundling.”
Asked about Roading NZ’s greatest achievements, Chris quickly brings up the 2004 ‘slow down around road works’ campaign. Downer was the lead member of this initiative.
“We got $1.6 million from the Road Safety Trust, used it on a huge media campaign, and it worked big time. Similarly, the Industry Self-Governance ‘Operate Safe’ model of 2005 produced a huge change in health and safety culture. NZCF developed QUEST in response to Operate Safe and together these changed the culture of the contracting sector.”
Through his work on the Operate Safe initiative, Chris was made a fellow of the Institution of Professional Engineers in NZ.
One of Roading NZ’s other big achievements, he says, was encouraging the government at the time to increase the government spend on roading infrastructure.
“In 2003 the NZ road construction budget was just $300 million. The government wanted to ramp up this spend, but believed the contracting industry didn’t have the capacity to deliver. Roading NZ brought together industry leaders and government department chiefs at a large summit held at Westpac Stadium.
“We settled on five goals and 40 action points to grow the contracting industry, with half of these to be initiated by government departments to create the right commercial environment.
“Then we had a meeting in Manukau City, hosted by Manukau’s mayor Sir Barry Curtis, with five government ministers who, within two hours, had ticked off and approved funding for all our plans.
“Our success was in following a policy process. I knew from being on the government side of things, this was the way to get things over the line.
“Two years later, the roading construction budget was $1 billion and employees in the roading sector had increased 40 percent, from 10,000 to 14,000, and every roading job put out had at least three bids for it.”
Although every man and his shovel has been involved with the new Trade Certification regime (launched in December last year), Chris says he was there at the very start.
“I knew back in my Wellington Council days that I had people working for me who had higher skills than those with drainlaying tickets, and always wanted trade certification for our sector.
“Some years ago I convinced the Roading NZ board of the idea. The Contractors’ Federation came on board and I became the chair of the establishment board that designed the regime.”
Chris moved on from the role of Roading NZ chief in August 2014 when it merged with the Contractors’ Federation to form Civil Contractors NZ.
“I was really looking forward to a rest and at least a month off.
“Two days after I finished work I received a number of phone calls for consulting work and I have been busy ever since.
“At least I did get a week in Rarotonga.”
“One of the things Dad had taught me was about the ‘waste’ when local authorities had jobs designed that weren’t practical. This often meant contractors were building things that weren’t optimal or efficient. Things could be done smarter.”