Falla episode unedifying

R. G. FALLA'S withdrawal of its tender to build the new clinical block at the PEH has ignited a political furore. Minutes of the Policy Council meeting that discussed the issue show that ministers expressed concerns about Commerce and Employment minister Stuart Falla's perceived conflict of interest and the exposure of the States to one building contractor that would be undertaking 90% of its capital projects.

R. G. Falla's decision to pull out will cost the taxpayer £2.5m and has significant economic implications.

The Policy Council's official line and Treasury & Resources conclusion is that it is imprudent for the States to depend so heavily on one company.

Two large public projects simultaneously would increase their risk of default, which would undermine the local economy, the government and subcontractors.

We have already experienced the consequences of the failure of contractors on other projects such as the airport, but this would be more damaging and contrary to States guidelines.

The minutes suggest, however, that it is in fact Deputy Falla's shareholding in the family building firm that has led to the most resistance.

Some ministers claim that he will benefit improperly as a shareholder from its States contracts through his political position.

There is a distasteful sanctimony and personal resentment in some quarters and an apparent forgetfulness that Deputy Falla was elected democratically and transparently to the States by his parish and to his ministerial position by the States.

This political interference undermines the island's business environment by damaging confidence in the government.

It is an unedifying episode and suggests an anti-business agenda.

Guernsey is a small island and there will inevitably be instances where conflicts of interest arise if the island elects those candidates who are most qualified to contribute to local politics.

As it is, the work for the clinical block will go to a foreign company and the taxpayer will have to find a further £2.5m to finance the project when he is already under pressure and facing a higher tax bill because of the 2008 fiscal deficit.

Higher taxes will restrain economic growth, while higher government spending will act to stimulate inflation.

The increase in the potential fiscal deficit will add to uncertainty and place more pressure on the economy to grow at a time when taxation is rising.

The council had to choose between a contract that was £2.5m. higher than the other tender or the risk of putting too much work in the hands of one building company.

The question of conflict of interest has tarnished the debate, but on balance it seems that the marginal cost of rejecting R. G. Falla's tender is greater than the marginal benefits.