A thin construction pipeline
The Government has promised to “take leadership” to bolster confidence in the construction industry, but Thomas Coughlan reports that new state-funded construction projects are few and far between.
Industry leaders were invited to the Beehive yesterday to meet with Government ministers who are hoping to reassure the struggling vertical construction industry in the wake of the collapse of Ebert Construction.
Speaking to reporters after the meeting, Building and Construction Minister Jenny Salesa, Housing Minister Phil Twyford and Infrastructure Minister Shane Jones stressed the two most pressing issues were the construction pipeline and the approach of Government to procurement.
The size of the pipeline of work is a pressing concern for the vertical construction industry, which excludes residential construction and horizontal infrastructure like roads and rail and cannot expect much in the way of Government spending.
An MBIE report into the construction pipeline showed that in Auckland non-residential building activity is expected to peak in 2019 with $3.5 billion worth of activity, before levelling off.
In Canterbury, non-residential building activity fell 20 percent in 2017 and is expected to continue to fall until 2022, when it will be worth $1.3 billion.
Wellington is currently experiencing elevated non-residential building activity, but this too is expected to fall by 30 percent to $0.5 billion in 2020.
Salesa acknowledged that the Government was a minority player in the sector, comprising just 18 percent of projects. And a look through the Government’s budget shows the vertical construction sector is unlikely to get much of a pipeline boost any time soon.
The Government’s big capital spends are firmly rooted in the areas of residential and horizontal construction.
The residential construction industry will reap the benefits of Twyford’s $2 billion KiwiBuild project, while horizontal construction will continue to enjoy NZTA’s largesse on new road and rail projects.
Capital spending in areas of Government one might expect to see vertical construction projects is relatively low. Just $740 million in capital spending was allocated to the country’s 20 district health boards, Education was given $395.8 million, and Greater Christchurch regeneration $298.5 million.
Remove the capital spending budgets of Foreign Affairs, Forestry, Housing, and Transport, which are unlikely to comprise much vertical construction (or, in the case of Foreign Affairs, unlikely to be spent on construction in New Zealand) and Budget 2018 contains just $2.285 billion of initiatives that may possibly go to vertical construction projects.
Large projects like Dunedin’s new hospital are still far enough in the future not to have funding allocated to them – and not to be much use to construction companies that need the pipeline of work now.
An end to lowballing
Construction companies have long voiced concerns that both Government and commercial bidders encourage construction companies to lowball when bidding for contracts.
Salesa said she would take an oral item to Cabinet asking ministers to ensure their agencies were adhering to MBIE’s procurement guidelines.
She said the Government had not taken a “whole of life approach” to procurement.
This was seconded by Twyford, said that “least cost” procurement had been an issue and Government would need to take a leadership role.
“We recognise not only do we want good, whole of life cost analysis to underpin procurement decisions but it's of strategic importance to the Government that we have a competitive and efficient New Zealand based contracting industry to do this work”, he said.
Master Builders chief executive David Kelly said that the problem of least cost procurement was widespread.
“This isn’t all about Government, there’s been a general trend over quite a long period of time over a lot of clients to go for the least cost model,” Kelly said.
“Unfortunately, many companies have gone for that system.”
National leader Simon Bridges said he was open to seeing what the Government would come up with, but was wary of forcing more cost onto taxpayers.
“The Government should be businesslike,” Bridges said.
“Its procurement should be trying to get the best deal for the taxpayer.”
Bridges said he did not accept the charge that contracts bid for under the previous National Government had contributed to the crisis.
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