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From the Olympics Toward Tomorrow
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"No profit"
- Large enterprises on the offensive as prices for Olympic-related construction collapse
The Japanese word "shussei" (literally 'to make a great effort') can also mean 'to give a discount'. This word, often used in trade circles, was mentioned in a major general contractor's itemized proposal (which received an order from the Nagano Prefecture Public Housing Authority to build one of the nine buildings at the Nagano Olympic Media Village)-- signifying its bid-price strategy.
Estimates by all other Nagano contractors were about the same. But after the "discount" was given its proposed cost was nearly 100 million yen less. Contract negotiators from the Prefecture Public Housing Authority were astonished, "Are there really those kind of discounts around?"
The Authority accepted design and budget proposals in July 1995 from six joint venture companies, all consisting of local contractors. The scale of the design was to be seven floors and 64 units per building. The Prefecture figured that local companies would have no problem completing the project.
The Competitor's Village "Imai New Town" construction site in Kawanakajima-machi, which local contractors divvied up into sizeable parts. Companies involved say that the bid amount was significantly lower than usual market price.
However, every proposal was 20% higher than the Authority wanted to pay, and therefore no orders were placed. That same month they decided to open bidding to five major general contractors and placed an order with the Toda Corporation with head offices in Tokyo, due to its bid being one billion yen lower than estimated costs.
After the Olympics the buildings are to be used as rental units. In order to be in line with "average private sector" rents, expenditure had to be kept down. The bid competition was designed to do just that. Compared with the usual method of first disclosing an exact design and then accepting bids, accepting proposals from the design stage allowed for more discretion on the part of companies, raising the competitive level and providing more possibility for reduced construction costs.
The joint venture to which Toda Corporation belongs also won a bid in January 1995 to build the "Asahi Media Village" in Kitanagaike, Nagano City. Those involved with the company explain, "We were able to procure concrete products for the Asahi site at a reduced price, and if we purchase other building materials in bulk we receive further discounts."
The "M-Wave" speed-skating venue, near the Asahi Media Village, was in July 1993 originally projected by the City to cost just under 21.5 billion yen. However, a joint venture centered around Kajima Corporation from Tokyo surprised local contractors with a proposed budget 3 billion yen lower than that figure.
One major contractor, in an interview at their administrative offices in Nagano, said, "There's no profit in Olympic construction work. However, the fact that we were able to work on a project that will live on in history is important. We simply think of it as enormous advertising expense." One project is not going to greatly change overall profit for contractors that currently have construction sites all over the nation.
Among the eleven Olympic-related projects under development within Nagano City, eight are being completed by major contractor joint-ventures.
One of the rare projects being completed by local companies is the Competitor's Village "Imai New Town." The Nagano City General Contractors Association petitioned the City government to award the contract to "a local company." The City began accepting bids in September 1995 by breaking up what had been seven blocks during the design process into twelve construction areas.
Participation in the bid was limited to local contractors and their joint-ventures with the restriction that one company could not be awarded contracts for more than two areas. As a result, the 23 joint venture companies broke into groups of two and split up the work. The successful overall bid price, according to the City's Olympic Construction Office, was "an appropriate figure that we had previously expected." But local contractors uniformly complain that it's "below market price."
"We can't expect the City to pay much more for this project than they did for the Media Village. We understood this from the beginning. But we also were unable to say out loud that we were fretting about the fact that projects were being snatched away by the big guys."
The proposed budget of a local joint venture whose bid price was 20% lower than the market price has 55 itemized expenditures. A column labeled "construction profit" is marked with a small triangular symbol signifying a loss. They are short workers due to the high demand, and rates for subcontractors have increased. Subtracting expenses from revenues brings about a figure many millions of yen in the red.
Administration at this unnamed company is now feeling the harsh winds all the way through to the skin, "Up until now we shared in the profit from top to bottom. I can't say there wasn't some collusion. But I guess we won't be seeing anything like that again."
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Copyright 1999 The Shinano Mainichi Shimbun