Infrastructure

Government’s ‘play nicely’ building accord

The Government has unveiled a 'transformation plan' it hopes will reduce risks for wary contractors. But is it just a few simpler contracts and some ministerial tut-tutting to officials and builders to 'play nicely' together? Dileepa Fonseka takes a deeper look.

Fletcher Building’s punt on the Christchurch Justice precinct project ended in it building half of the project twice over and being sued by a subcontractor. 

The problem was the “dog of a contract, and the rigid enforcement of its terms by government," said AUT's Head of Built Environment Professor John Tookey. The contract was reputed to have had 197 pages of special conditions.

“Government don’t take any prisoners. If they’ve got a contractor signing on the bottom line they don’t walk away from it," Tookey said.

He supported a move by the Government to pursue a “play nicely” approach to tenders, but questioned how it would play out. 

The construction sector transformational plan was released on Sunday, containing a set of principles and minimum conditions. The plan followed the signing of an accord between the industry and the Government in April 2019. That grew out of crisis meetings in August 2018 in the wake of shock losses by Fletcher Building's Construction and Interiors unit from the Christchurch Justice precinct projects, and the collapse of Ebert Construction in Auckland. See more on the crisis meetings in our August 2018 report.

Laissez Faire vs enforcing 'niceness'

Infrastructure NZ Chief Executive Paul Blair said the “carrot” to encourage better behaviour by both industry and government was that compliance with the plan would be a precondition for getting government contracts. 

But Tookey cautioned the plan might not translate into behaviour by firms not competing for government contracts, and there were “natural limits” to how far some would cooperate with one another.

“They’re saying you’ve got to play nicely, but that's not the same as creating the conditions where that’s second nature,” he said.

Would governments really 'play nice' on construction contracts, Professor Tookey asks. Photo: Lynn Grieveson

Tookey said it illustrated the different political philosophies between the last government and the current one. 

“The previous government was extraordinarily laissez-faire and the new government is more keen to intervene, to enforce ‘niceness’ as it were.”

Fewer conditions would be set in stone and the contracts would be simpler, similar to a model that operates in Canada where there are “very, very brief and standardised procurement contracts,” Blair said. 

“Can you imagine the political situation of government telling voters what we’ve done is because a contractor has failed miserably we’ve given them an extra $100m so they can make a profit?”

An emphasis on not picking the lowest bidder would also ensure subcontractors weren’t overburdened by construction firms who bid low for a contract, but are then pressured to deliver below-cost. 

Building and Construction Minister Jenny Salesa said the last government's “hands-off” approach had not worked. 

“Labour productivity growth has been dire – averaging just 0.6 percent between 2011 and 2017, and that’s meant building in New Zealand has cost more than it should,” Salesa said in a statement.

The Watercare model

Watercare’s $2.4b 10-year partnership with Fulton Hogan and Fletcher Construction last year was often cited as a way such an approach could work. 

Rather than tender work on Auckland’s water network in separate chunks, the firm has chosen to enter into a broad partnership with two firms. 

Tookey said that gave firms the ability to plan and scale up, but he questioned whether it would work out that way in practice. 

How would government combat accusations of harbouring a cosy relationship with private firms, or anti-competitive behaviour, if contracts were committed to paper a long time in advance, he asked. 

And if it came down to a decision between enforcing part of a contract and not doing so, would governments pay money they were not contracted to pay just so that they could save the overall partnership?

'There's nice and then there's too nice'

“What do you do? Do you say ‘no no no, have some more money so you can make some more money?’”

“Can you imagine the political situation of government telling voters what we’ve done is because a contractor has failed miserably we’ve given them an extra $100m so they can make a profit?”

The bigger impact would come from restructuring construction industry training by investing in centres of excellence and making construction an attractive proposition for young people, he believed.

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