Friday, September 23, 2011

Scandal in the construction industry

A well know secret in Quebec is that the construction industry cartel extract economic rent from the province in its construction projects.  Fact 1:  Roads in Quebec cost about 30% more to build than in Ontario (similar weather).  Fact 2:  For more than 30 years the Quebec department of transport has failed to inspect work sites -- only doing paper inspections. Fact 3:  Everyone in the province hates Public/private partnerships. Now the police force union wants an independent commission to investigate these "crimes".  

Think about it, the police doesn't want to do its job, they don't want to investigate arrest and obtain convictions, they want whitewash -- its the only explanation I can phantom, as to their behavior.  It is possible that the police union sees the level of corruption so institutionalized that they see no way of obtaining any conviction.  

The reality of PPP is that they do contain costs and keep the contractor "honest" because he's got to bear the costs of maintenance for the next 20 years.  This morning on Radio Canada the announced said "I think there was even some excess cost on the 25" which was a PPP, which BTW was ready ahead of time and on budget.  Further proof of the dislike for the method of building.

Imagine that you tell a contractor that he's got to build (or replace) a structure and will remain responsible for maintenance cost for the next 20 years -- odds are he will make sure that it is correctly built.  Take the opposite example, renovate a house and never show up on the construction site -- what do you think will happen?

Just a rant, nothing more to say, no economic news -- that CAD is stable, USD is strong against all currencies.  Operation Twist has worked, 30y TBond is at 2.76% (7 standard deviation down -- only more extreme move was in 1987...).  Earnings report are coming in, analysts projections for full year earnings are also declining -- reality is a bitch.

Add-on:  Last night (Sunday 25/9) the man in charge of the construction industry inquiry was on one on Quebec's most watched program.  Aside from the real life issue of personal security for the man, another issue was the apparent lack of proof of "criminal behavior" which could lead arrests and conviction.  Much analysis was based on data analysis (proves that something was up but not who did the crime...).  The idea of a public inquiry would be to be bring light to the process and allow for new procedures to "stop the rot", a somewhat valid argument  


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