Allow outside companies to rebuild?

November 26, 2012

Few outside firms join rebuilding / Despite govt scheme to encourage joint ventures in disaster-hit areas

The Yomiuri Shimbun

http://www.yomiuri.co.jp/dy/national/T121125003469.htm

Very few construction companies outside the three prefectures devastated by the Great East Japan Earthquake have participated in the reconstruction of the region despite a government program meant to encourage them to do so.

The program encourages outside companies to form joint ventures with companies in the prefectures that do not have enough manpower to deal with the reconstruction work.

The Land, Infrastructure, Transport and Tourism Ministry introduced the scheme in this fiscal year for Miyagi, Iwate and Fukushima prefectures.

But in many cases, local governments are reluctant to utilize the program. Only four contracts have been signed under the plan, the ministry has found, less than 1 percent of all orders awarded for post-disaster reconstruction work.

There has been a shortage of bids for public reconstruction work in the disaster-hit areas--about 25 percent of such project offers have not drawn any bids.

The ministry will consider measures to improve the situation. About 20 percent of approximately 3,200 orders for construction work placed last fiscal year in the three prefectures could not be filled, including some for the city of Sendai, according to the ministry. Some of the orders did not attract any bidders because there is a shortage of engineers who can manage work sites.

Therefore, the ministry introduced the special joint venture scheme for reconstruction work to encourage companies outside the three prefectures to enter the market.

Compared with conventional joint venture schemes, regulations on dispatching engineers have been relaxed. If a local construction company is short of workers, it can win public works orders by joining hands with a construction company outside the three prefectures.

But the plan has been used only in Miyagi Prefecture. In Iwate Prefecture, only companies based in the prefecture are allowed to participate in joint ventures. In Fukushima Prefecture, the prefectural government has not introduced the special program, saying orders from the prefectural government should go to local companies.

There were 1,280 bids for reconstruction-related public works in the three prefectures between April and September this year, according to the ministry.

But only 87 bids in Miyagi Prefecture were held under the new scheme, and only four contracts were signed. The percentage of orders that could not find contractors in the three prefectures this fiscal year has already reached 24 percent, up five percentage points from last fiscal year. Though resolving the problem of the shortage of construction companies is an urgent task as full-fledged reconstruction works start, a ministry official said, "Contrary to our expectations, the scheme has not been sufficiently utilized."

Prof. Toshihiko Hayashi of Doshisha University, an expert on economic policies, said: "It's the prerogative of the local governments to decide whether to let companies based in other prefectures participate in reconstruction work to speed up the work or to place priority on protecting the interests of local companies.

"But it's the disaster victims who are forced to endure the inconvenience. It's necessary to think about how long local governments can make the victims wait."

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Work must not be delayed

By Shigetaka Mori / Yomiuri Shimbun Staff Writer

One reason why the special reconstruction joint venture scheme has not been utilized is that local companies are wary about companies from other prefectures entering their market, and the local governments have deferred to their fears.

In placing public works orders, local governments in general limit eligible bidders to local companies to boost local industries.

Because the joint venture scheme temporarily relaxes the limits, it contains a risk for local companies.

An official of the Miyagi General Construction Association said, "In the disaster-hit areas, profit margins are low because costs for material procurement and labor have been rising."

Commenting on reconstruction tie-ups with outside companies, the official said, "It's meaningless to jointly win contracts if you have to spend so much time and effort to do so."

An official of a construction company in Fukushima Prefecture said, "If companies of other prefectures enter this market, it will lead to excessive price-cutting competition."

Although it is important to consider local companies, it should not be done at the expense of delaying reconstruction.

Concerned entities need to consider the best way forward by taking into account the interests of all of the disaster-hit areas.