Should KiwiRail's wagons contract have gone to Hillside?

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Here's an idea

Since it's all about cost, maybe the government should just outsource itself to China. Think of the savings. Eventually we could become New Zealand Ltd, a wholly-owned subsidiary of China Inc.

Kiwirail is a State Owned Enterprise

Kiwirail is a State Owned Enterprise as per this link and the links on this page
From memory, the minister in charge can't interfere with the day to day running of the company.
This statement pretty much covers why Hillside as the third placed bidder could not get the contract, i.e. you would not expect a commercial company to do that and SOE's are probably designed to stop the loading up of employees to keep the dole queue artificially low as in the 70's and early 80's.
State-Owned Enterprises (SOEs) are owned by the Crown but operate as commercial businesses.

[Abridged]

Dunedin commuters and Hillside both winners

The price of petrol will continue to rise (given that oil is a finite resource), and therefore we will need to rely more on public transport. Why doesn't the DCC fund light-rail
services between Mosgiel & Dunedin and Port Chalmers & Dunedin? Light-rail carriages and cable-cars are surely able to be made by Hillside workshops. Let's buy local and protect the industry and skills that are left in our city.

Kiwirail

It's interesting to note that a lot of NZers don't realise Kiwi Rail is a government department, like Air NZ, and NZ Post, and that's the very reason Kiwirail executives should be handing the contract to Hillside.

Hillside Engineers are the best in the world. Not only would they be getting a superior product produced in Dunedin, but they would also be investing in the NZ economy.

The Chinese product will no doubt have to be improved by Hillside Engineers. [Abridged]

Actually it is not privately owned

I think you will find Kiwirail was renationalised in 2008 when the Labour Govt paid a huge $665m to buy it back from the Australian onwers. Since then many millions more has been budgeted for rail infrastructure going forward.
Kiwirail is the trading arm of NZ Railways Corp, a State Owned Enterprise, therefore we all own it, and it is not a private corporation in the normal sense.

What do you all expect?

KiwiRail is a private corporation. If it was a state owned enterprise all of your arguments I have read above would be valid. You are all bang on. However you are all totally out of touch with reality here.
Kiwirail is a private corporation and this means its prime directive is to make money for its shareholders. The reason for its existence is to make a profit. That is the goal.
Pretty much the number one way for a corporation to make a profit these past two years around the world is to cut costs. The number one cost cut here is labour.
You can't accuse KiwiRail of being irrational, or illogical. You can't accuse them of not looking after the NZ public good either. Because despite whatever the politicians might say, looking after the NZ public/economy has nothing at all to do with KiwiRail. So of course we also should not allows ourselves to be fooled by the name 'KiwiRail'.