Asset Management

72. The Crown is the largest owner of built assets in New Zealand. The carrying value of government assets is in excess of $103 billion and each year, the public sector spends over $5 billion in capital and maintenance to support the delivery of government services to the community.

73. The government sees effective asset management as an important part of the agenda for modernising the delivery of public services, delivering value for money and minimising the risk associated with this significant commitment of budgetary resources.

74. In the foreseeable future, the case for obtaining cost-effective performance from the Crown’s physical assets is even stronger, given the tough economic outlook and ever-increasing service expectations of the public.

75. With this in mind, the government is putting in place new disciplines that will support the objectives of the National Infrastructure Plan in three main ways:

• Regular reports will provide it with a systematic, annual view of the long-run capital intentions of agencies responsible for managing large or critical parts of the Crown estate. This will enable the government to make better-informed allocative decisions through time and convey its priorities to external stakeholders;
• Decision-making processes will focus on whole-life cost-effectiveness, and reinforce the need for an analysis of the relationship between physical assets, service levels and outcomes, and the economic analysis of investment choices; and
• Standards, methods and language that underpin and enable good practice to be built and shared across the public sector, including local government, will be used.

76. In this context, construction contracts should:

• Maximise innovation: The Request for Proposal (RFP) should often be expressed in terms of needs, functions and operational performance requirements rather than describing requirements in design or descriptive characteristics;
• Minimise risk of cost blow-outs: Risks should be rigorously allocated to the party best able to manage them, and a contract should not be let until it is understood well enough to obviate the need for subsequent contract variations; and
• Minimise the risk of going over time: This can be achieved by making a single lump sum payment on completion of the project, rather than progress payments. This incentivises the contractor to trade financing costs against more expensive but faster construction methodologies, thereby finding a solution that is more economical (and likely faster overall) than if progress payments are made.