Firms beg Government for more construction work

The Government has explained away delays in enacting major infrastructure projects by insisting the construction sector is maxed out, but firms say they're looking to cut jobs and industry groups are worried the project pipeline is about to run off a cliff. Marc Daalder reports.

It was a number that got lost last week amidst speculation about unemployment numbers and Official Cash Rate cuts, but which in retrospect deserved more attention.

According to ANZ's July business confidence survey, a net 33 percent of construction firms are looking to cut jobs. The contracting sector reported 15 percent of those surveyed planned to cut staff in the next 12 months, nearly double those planning cuts two years earlier.

ANZ also found that the construction sector had the weakest profitability expectations of all industries, and its weakest since 2009, with a net 38 percent of firms predicting declining profits.

The figures come after years of industry complaints that there aren't enough skilled workers to take on the Government's ambitious infrastructure plans, which have been mired in delays.

But Infrastructure New Zealand chief executive Stephen Selwood says the two seemingly-incongruous worries have an explanation: a murky project pipeline.

Pipeline unclear

"Absolutely there is a need for clarity of the construction and infrastructure" intentions of the Government, Selwood said. "The infrastructure pipeline is really important. In the absence of certainty about what the pipeline is, you end up with construction companies and infrastructure providers basically just gearing up short-term."

A survey from Civil Contractors New Zealand reinforced these concerns, with 77 percent of construction firms saying the development of a clearer pipeline would have "the most positive impact in the next three years".

CCNZ's survey also found that 50 percent of firms would recruit more staff in the next 12 months, down 13 percentage points from 63 percent the previous year. The number of firms planning to downsize in the next year, according to the survey, nearly doubled to 15 percent.

"Right at the current minute, overall, we still need more employees. But after the next 18 months, that might change," said CCNZ's CEO, Peter Silcock.

Firms also have worries about training employees, CCNZ reported. Companies are increasingly having to hire unskilled employees, with 58 percent delivering more than half of staff training on-the-job.

However, this training is generally tailored only to a specific project. Instead of investing in training a workforce to deal with a variety of complex projects, firms train employees only to deal with whatever project is at hand because the sector has been operating on a boom-or-bust model.

Systemic issues

Shane Jones, Minister for Infrastructure, said in a statement that he recognised there were flaws in the system.

"The lack of a long-term infrastructure pipeline that is visible and accessible to everyone is a problem that successive governments have faced. This Government is actually doing something about it," he said.

That's what the new Infrastructure Commission is designed to address.

"The legislation to create the new independent Infrastructure Commission is wending its way through Parliament as we speak and the Commission is on track to be operational by October," Jones said.

Selwood said the industry was "a strong supporter of the commission". In the meantime, however, the industry's concerns were going unaddressed.

"When you do have a whole bunch of work coming through, you suddenly find that your sector is shortchanged and you don't have enough resources to do all the work. We've been in that boom cycle really up until now," he said.

Now, firms are staring into a black hole. As they wrap up work on big projects like the Waikato Expressway and Transmission Gully, companies have nothing to turn to next.

Government urged to do more

"The new Government has not put any investment in any major projects. There are none. Beyond Manawatu Gorge and winding up the Southern Motorway in Auckland, there are no large projects in the pipeline," Selwood said.

Even worse, some firms geared up with the expectation of a smoother pipeline, but major projects like the Melling Interchange and or light rail to Mt. Roskill have been cancelled or delayed for a decade or more.

In a press release, National Party Transport spokesperson Chris Bishop said that the rail project to Mt. Roskill was "Labour's latest broken promise". He said that construction on the line would not begin until 2022, "if at all".

This exemplified the concerns of construction companies, said CCNZ's Silcock.

"Right now, we’re seeing some of the big jobs that the Government is proposing haven’t really got off the ground and they don’t look like they’re going to get off the ground in the near future," he said.

"All the projects that the industry had been expecting would be built have been either reviewed, cancelled, or withdrawn."

Jones contested this, saying major projects were in the works, they just weren't necessarily roads.

"Right now we have some major projects under way – Dunedin Hospital, the Multi-use Arena in Christchurch, we’re pumping $1 billion into KiwiRail, the Provincial Growth Fund is funding a five-year pipeline of roads in the Gisborne district – just to name a few," he said.

In May, Treasury released a much-hyped online Infrastructure Pipeline meant to help stakeholders keep track of the projects scheduled or underway. The version currently on the website was last updated May 1, and has a note saying it will be updated in early June.

Of the 174 projects listed on the page, which range in scope and specificity from a nationwide investment in horizontal infrastructure to upgrading a specific bridge on State Highway 10, only 42 have estimated construction dates.

Selwood called on the Government to step up in the immediate future and launch or clarify their intentions on more projects to fill the looming gap in the pipeline.

"It's time for the Government now to start investing in infrastructure, taking advantage of low rates domestically and internationally, and compiling a long-term, credible pipeline of projects so that companies can gear up," he said.

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