Pay field contractors to stay in business, not only for the jobs they finish

For most of my career, field work on Japanese cable and fibre networks has been bought by the job. An operator issues a work order, a contractor firm sends a technician and the operator pays a unit rate for an installation, a repair or a pole transfer. The arrangement is efficient, and for two decades it kept our field costs predictable. My position is that for the core of a regional network's field workforce it has become a false economy, and that operators should buy part of that work as a retainer for capacity and apprentices, accepting a higher cost per completed job in return for crews that will still exist.

I started my working life in one of those contractor firms, splicing fibre in a site shed in Fukuoka in 1994, and I know how the economics look from the van. That background shapes my argument, and readers should weigh it accordingly.

What the piece rate concealed

In 2022 I asked our purchasing team for a profile of the 46 firms that carry out our field work. They could tell me each firm's cost per job, completion times and rework rate. They could not tell me how old its technicians were. When we asked the firms, the average was 51, with almost a quarter over 60. Five firms had closed in the previous three years, three because the owner retired with nobody to take over. In our purchasing data each closure had appeared as a supplier lost and its volume redistributed. Together they described a workforce ageing out of the work faster than anyone was entering it.

The piece rate had helped to produce that. A firm paid only for completed jobs carries the whole cost of idle time, training and a new technician's slow first years. In a quiet month it earns little; in typhoon season it is asked to send everyone at once. A small firm in that position does the rational thing. It hires experienced people when it must and trains nobody, because a trainee's first two years come out of the owner's pocket. We had built a purchasing system that was cheap in each transaction and expensive in aggregate, and the expense would arrive later, as a shortage.

The overtime limits that began to apply to construction work in April 2024 sharpened the problem. Those limits were overdue and I support them. They also mean that the old answer to a typhoon, asking the same technicians to work very long days for a fortnight, is no longer available in the same form. Surge capacity must now come from more people, and someone has to pay to keep more people trained and employed between surges.

Paying for readiness and apprentices

In 2023 we moved our eighteen largest contractor firms, which carry about 71% of our field volume, onto three-year agreements in two parts. The first is a monthly retainer for each qualified technician a firm commits to our work, paid whether or not work orders arrive. The second is a unit rate for each job, raised by 12% from the previous schedule. The retainer carries conditions: at least one apprentice for every eight technicians, a safety record we review jointly and no subcontracting of our work beyond one tier, so that we know who is actually on the pole.

The apprentices train through the Hinoakari Technical Training Foundation, a non-profit in Kumamoto funded by several contractors and operators, of which I am a director. A trainee spends twelve weeks on fundamentals and then a year working beside an experienced technician before working alone. We pay part of the course cost and the firm pays the trainee's wage.

The retainers cost about ¥1.4 billion a year, and our cost per completed job has risen by about 7%. Against that, technicians under 35 have risen from 9% to 17% of the workforce on our contracts, 164 apprentices have completed training and annual turnover among contracted technicians has fallen from 14% to 8%. Average time to repair a reported fault has fallen from 31 hours to 19, partly because firms with committed capacity plan their rosters instead of waiting for work orders.

Our chief financial officer opposed the change in writing, and her argument deserves a fair statement. Repair volumes should fall as we retire coaxial cable, because fibre fails less often, and adding fixed cost to a declining activity is on its face poor practice. My reply was that the decline is in repairs per home, not in the need for trained people when a typhoon or an earthquake takes out a third of the network at once. We agreed a review after three years, with measures fixed in advance. I would rather be judged against those measures than against my own conviction.

Where competition still belongs

Our head of purchasing disagreed on different grounds. He feared that retainers would remove pressure on price and quality, and that the eighteen firms would grow comfortable. The risk is real, and we have kept competition in three places. New-build and migration work, which is project-based and predictable, is still tendered. The unit-rate schedule is benchmarked every year against what we pay firms outside the retainers. And a firm whose quality or safety record falls below an agreed level loses part of its retainer for the following year, which has happened twice.

Part of the cost fell on the 28 smaller firms outside the retainers. Their share of our volume has fallen from 29% to 22%, and two have closed, including the one that served our island communities. We now pay a premium to send crews by ferry. If I were starting again, I would build a pooled arrangement through which small firms could share a retainer and an apprentice, rather than leaving them to compete for what remained.

Operators should also be careful with the bargaining power they hold. Japan has long had rules on fair dealing with subcontractors, and the spirit of those rules matters here more than their letter. A retainer can be used to make a firm dependent and then to squeeze it. Ours are disclosed to every participating firm in full, renewed on stated criteria and discussed each year at a meeting where the contractors speak first.

I do not argue that all field work should be bought by retainer. I argue that a regional network should identify the core of the field workforce it cannot do without in a disaster, pay to keep that core in being, and report its age and depth to the board as seriously as it reports how old its equipment is. Our board now sees both figures every year. Until 2022 it saw neither, and nor did I.