The six issues facing contractors right now
New Zealand has an infrastructure deficit of up to $75 billion, with thousands of projects – including facilities and three waters networks, roads, tunnels, and public buildings – requiring replacement or an upgrade. With so much work in the pipeline, contractors must be rubbing their hands in glee, right?
As published in Contractor magazine, August 2021
Over the last few months, I’ve travelled the length and breadth of the country, talking to businesses, many of which are involved in procurement, construction, property and land development. They tell me that despite the Government’s assertions that we are on the road to economic recovery post-Covid, there are six major issues confronting contractors.
The construction industry, like every other business sector, is facing a dire shortage of workers – mainly as a result of our borders being closed to migrants, the inconsistency of projects coming out of the pipeline, and workers being lured across the Tasman where the Australian Government is investing AU$110 billion over 10 years in transport infrastructure across the country through a rolling programme of projects.
How can New Zealand firms compete? We need to change the immigration settings so new workers from overseas can get a ‘work to residency’ visa, whereas they are currently precluded under the current rules. When Australia and Canada are offering such schemes, New Zealand will have difficulty in attracting the best from around the world.
Rather alarmingly, the Government has indicated that it has no plans to open our borders anytime soon to migrant workers, saying they ‘cannot afford to simply turn on the tap to the previous immigration settings’.
We also need to be working smarter, not harder. We should be supporting our construction firms to become more technology-savvy and assist them to invest in plant and machinery that allows them to be more productive.
During the last election, we said that we would allow new plant and equipment up to a value of $150,000 to be written off in one year, rather than depreciated over eight to 12 years, as is allowed under current tax rules. This would allow firms to upgrade to new equipment, with the potential to increase productivity and process efficiency.
In April last year the Government announced a comprehensive list of 147 ‘shovel-ready’ projects across the country costing $2.6 billion. The list included museums and libraries, roading projects, upgrades to three waters networks, cycle paths, tourism and leisure facilities and sports centres.
All were meant to start within a year – the definition of ‘shovel ready’. Less than half were underway as of May this year.
In addition, major roading projects such as Mill Road in south Auckland have been cancelled, having only been promised in the lead-up to last year’s election.
Chopping and changing decisions on projects this size creates a high degree of uncertainty for construction firms. Without being assured of what’s coming up in the pipeline of work and when resources will be needed, firms will not invest in new equipment and to train up or take on new workers.
We have limited capacity in this country to undertake multiple large projects at once. Auckland currently has two major tunnelling projects underway – Watercare’s Central Interceptor and the City Rail Link. Both are massive infrastructure projects involving hundreds of highly skilled workers.
However, both projects have required the input of foreign firms – the French for CRL and the Italians for the Central Interceptor – as New Zealand does not have the capability for tunnels of this size.
We need to take a far more strategic view of planning our major infrastructure projects to keep the skills we need right here in New Zealand. Central government needs to be clear about its plans and ensure a continuous pipeline of works exists so major contractors can resource accordingly.
For example, imagine if the Government had laid out a 20-year tunnelling programme which started with the Waterview tunnel, moved to the CRL and then Watercare’s Central Interceptor and then to Wellington to put a tunnel under the Basin Reserve to remove the transport blockage before undertaking the cross-harbour tunnel in Auckland.
This is the pipeline of work that would attract specialist firms to New Zealand and, as part of that process, we could require them to build the skills of New Zealanders over this 20-year programme of work so we train up our workers to become world leaders in these fields.
Lowest cost still the focus
We do not execute projects well and our procurement processes are very poor on the whole. We focus too much on the lowest build cost rather than adequately assessing ‘whole-of-life’ costs, which takes maintenance costs into account.
Many of our local companies are disadvantaged when a lowball bid is made, when in fact such bids should be discounted due to higher maintenance costs over the life of the project.
We need to allow local contractors to have a reasonable shot of being awarded local jobs. This would enable a more geographically dispersed workforce and would mean contractors wouldn’t have to uproot their families to move around the country as new projects arise.
Supply of materials
The supply of materials – and particularly the current delays in accessing resources for building projects – is a very worrying worldwide issue, exacerbated by our own country being at the end of very long supply chains and our restricted port and regional transport networks.
Some firms are reporting delays of up to three to six months before they can get supplies – and it’s getting worse. Now is not the time to be short of building materials when we desperately need more homes. Unlocking these shipping, container and transport blockages requires central government input.
New building materials and systems
We as a Government should also be encouraging the use of more modular construction and prefabrication. We already have manufacturers here in New Zealand with proven expertise in this area; it is still a relatively small component of the construction sector currently. As the volume of modular construction increases, this will in time drive down the cost of production.
One of the barriers to allowing alternative building systems and products to be used in New Zealand is that they must comply with the NZ Building Code. Perhaps we need a different approach with regard to imported building products and systems that have already been tested against rigorous international standards and approved for use in places such as the EU, UK and US.
It is vital that the building and construction sector is and remains a dynamic and successful industry. Given it employs about 250,000 New Zealanders, it needs a Government that is focused on providing enduring support.
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