Construction firms and asset owners are going to have to get creative if the country is to maintain a pipeline of work to help it navigate the economy through the post-Covid-19 recession, Crown Infrastructure Partners chair Mark Binns says.
There is no shortage of potential projects that could be included on a list the government wants prioritised for construction around the country within the next six to 12 months, Binns said.
But to get work underway in that sort of timeframe, and with the added uncertainties created by Covid-19 and the global slowdown, new approaches will be needed, he said.
Government procurement rules are already proving frustrating for some, he told BusinessDesk. Construction work insurance – at a time of heightened uncertainty – is likely to prove another obstacle.
Firms and government agencies are going to have to find ways to make progress.
Binns cited the 2008 Victoria Park Tunnel project in Auckland as an example. The New Zealand Transport Agency kicked off the project in the middle of the global financial crisis with partners including Fletcher Building and Beca.
There was no fixed price contract and little more than a concept design, Binns said. But diggers were on site after four weeks and the project continued based on agreed margins and overheads and built up from there.
"That's the sort of thing that people are going to have to come to grips with – if we are going to get a lot of this stuff done and very quickly," Binns said.
"We're just going to have to be a little bit innovative."
The "shovel-ready" initiative announced by the government today is targeting projects of $10 million or more that are ready to go, are of public or regional benefit, and will deliver "material" employment benefits.
By definition, the programme will draw on a pipeline of building and infrastructure projects around the country, which in some cases had been competing for limited skilled workers and specialist engineering capability.
Binns said the role of the infrastructure reference group he is leading is two-fold: identify projects which are genuinely "shovel-ready" and can be accelerated; and advise the government on any options it has to remove potential barriers, such as resource consenting issues, Public Works Act issues, or procurement rules.
Support and cooperation from the private sector had been "fantastic," he said, and potential issues were already being identified.
The industry standard construction contract – NZ 3910 – he noted, has no definition of force majeure, and should that be left to be litigated for every project?
Under works contract insurance, who should carry the risk of delays due to a reversion to a level 4 lockdown, or delayed deliveries because of similar developments overseas?
Binns saw no problems identifying potential roading, rail, water, and bridge projects – "all that big horizontal stuff."
"But we need to get some regional equity in this as well. We need to be looking at those areas that have been particularly hard hit," he said.
"It's all about jobs for New Zealanders and especially the skills that are essential for us when we bounce back from this, and making sure that we spend that money well."
The lockdown has halted work on all but essential projects and firms nationwide have stopped any sort of discretionary spending.
Infrastructure New Zealand yesterday warned that up to 30 per cent of construction jobs could disappear within the next six months as firms go bust and projects are cancelled. The New Zealand Transport Agency is making advance payments to roading contractors so they can retain staff until work resumes.
Overseas contractors working on some major projects have already left the country and travel controls are likely to remain tight for many months to come.
Binns said capacity is a constraint and building 10 "monster" projects in Auckland would be foolish. But he said there are signs of spare capacity in some parts of the country, such as Canterbury.
Binns said vertical construction – typically offices, retail and accommodation – will be especially hard hit and will also be harder to protect from the abrupt slowdown.
His role was not to protect private businesses and nor did the government have an obligation to protect projects where it was not going to be the asset owner.
But Binns said it may play a role in ensuring existing work gets completed where there is sufficient public benefit in that occurring.
He cited the hypothetical example of a partially completed apartment block being built for student accommodation. The government could have a role in ensuring that work was completed, leased out to the local university and then sold at the appropriate time down the track.
"We want to make sure that the things that we are building are the best ones in terms of the public good," he said.
"We're not building bridges to nowhere.
"We want building projects that are actually going to help New Zealand when we eventually do get off the canvas."
Binns is aiming to report back to the government in early May.
'The inclination is not to do too much,' Forsyth Barr analyst Peter Sigley said.