For New Zealand's construction industry, the best and worst of times have arrived together. Demand is soaring, but so are costs and labour shortages, and even some big-name builders have found it tough to make a profit.

You don't have to look far to see the tensions in the industry. Late last month, for example, Canam Construction said it had stopped work at Alexandra Park, where it was building more than 100 units, while Corbel Construction stopped repair work on an 81-unit Parnell townhouse complex.

And this week, national builder Ebert Construction went into receivership with debts believed to be $40 million, leaving the future of 15 contracts and 95 staff in doubt.

One industry leader is concerned about the stability of the commercial sector, particularly in Auckland.


Chris Hunter, managing director of building firm NZ Strong and ex-Hawkins Construction chief executive, says the industry is in a state of flux because of the booming market, high workloads, skills shortages, construction companies' failing projects and rapidly-rising prices for materials.

Chris Hunter of NZ Strong, concerned about the sector
Chris Hunter of NZ Strong, concerned about the sector

"The traditional top-end players like Fletcher Construction and Hawkins have either left the high-rise market or been taken over by Australians. So building here will cost more," he says.

He predicts that overseas builders will demand far more detailed design documentation before they bid, in an attempt to make contracts less risky, "particularly if it's a build-only contract, not just design-and-build. Clients can expect to face a tighter and more demanding contractual environment as these companies are in New Zealand to make money."

In response, says Hunter, clients are now trying to split big jobs into smaller packages to see if mid-tier builders will bid.

"I'm seeing this happening, but clients and their advisers are still trying to pass on the same level of risk to those mid-tier builders who may struggle to accept that level of risk." Balance sheets might be endangered by just one large project, says Hunter.

"Where is the Government, looking after our industry?" he asks. Hunter wants to see a more sustainable sector, "not just a lowest-cost, no-barriers-to entry – which gets us to this point, having to encourage overseas building companies and labour to come here. The open market has failed, but this is not a quick fix. The Government alone can drive changes."

He suggests that the Government should call for a full report on the industry - "why we are failing, what needs to change to stop the potential for further failures and creating a more sustainable industry."

On Monday, Building and Construction Minister Jenny Salesa released the national construction pipeline report from the Building Research Association, showing big growth in the next six years. And in the middle of this month, leaders will gather to discuss the challenges that go with that growth.


Constructive 2018, a building industry forum, is on Thursday August 16 at Te Papa Tongarewa, Wellington.

"Unprecedented demand for residential building and commercial construction in New Zealand is putting huge pressure on the sector," conference organisers say.

"Over $40 billion worth of building activity is forecast annually in New Zealand for the next four years," the conference programme says. "Housing shortages and the demise of large commercial projects last year suggest that the industry may be at a tipping point. New Zealand is about to embark on the largest building programme in its history. The Government has set itself a target of building 100,000 homes over the next 10 years. Some say it is too ambitious while others say it is not ambitious enough."

Chief executives of the country's biggest builders will be asked how much confidence they have in the economy, whether the right policies are in place and if the sector is performing.

The role of sector-changing trends like building information modelling, early contractor involvement, drone technology and 3D printing will also be discussed.

David Kelly, chief executive of Registered Master Builders, is expecting big results.

Kelly says failures in the sector are of huge concern. "When big construction companies hit big trouble, like Fletcher Building or Carillion in the UK, it spells bad news for suppliers, employees, shareholders and customers. These recent examples are not just the result of commercial bad luck or poor governance. They also point to problems with how risks are being shared. This needs fixing, to avoid fewer players in an already small market and to promote both capability and competition in the building sector."

He notes how Carillion ran out of cash and collapsed in January this year, despite being one of Britain's biggest facilities-management and construction companies, with revenue of more than £5b.

"The chief executive had already stepped down mid last year after having to write off £845 million on construction projects. Carillion was hit by rising material and labour costs on fixed price government construction contracts, stalled construction projects and late payments in the Middle East, and a contraction in construction at home due to Brexit uncertainty," says Kelly. "In February, Fletcher Building announced it expected a $660m loss for the 2018 financial year on major construction projects run by its Building + Interiors group. This was on the back of a $292m operating loss for this group in 2017."

Kelly estimates that New Zealand's construction sector can look forward to $200b worth of work in the next five years. "Instinctively, this should be a good thing, but building in a boom is becoming fraught with difficulty.

"A question we will ask at Constructive 2018 is whether the sector is at a crossroads. That is not to say that all companies suffer during a boom - some excel - but what should be productive times for all, tends to give rise to all sorts of expectations from the client, head contractors and subcontractors, some reasonable but some unrealistic."

The country's biggest commercial builder - Fletcher Construction, owned by NZX-listed Fletcher Building - this year said it was pulling out of high-rise construction after losses of nearly $1b in its Building + Interiors (B+I) division.

Now, its chief is moving sideways after having been appointed only last year.

Graham Darlow who once headed Fletcher Construction. Photo/Greg Bowker
Graham Darlow who once headed Fletcher Construction. Photo/Greg Bowker

Michele Kernahan became Fletcher Construction's chief executive after the long-serving Graham Darlow retired, but a surprise announcement on July 16 revealed she is to be replaced by KiwiRail chief executive Peter Reidy. Kernahan will become building products chief executive, and by the time she moves, will have been in the construction chief's job for only one year and eight months.

A Fletcher spokeswoman says construction employs about 4000 people in all its business units, including B+I.

Asked for revenue, she says: "The most recent disclosure made was at our half year. We had $950m worth of work still to come for B+I at Dec 17, and $1.4b for Higgins and Infrastructure. Obviously B+I's backlog will continue to reduce as the business winds down. In the six months to Dec 2017 gross sales were $1b. Of course revenue for the division isn't very meaningful given the losses incurred."

Hawkins, the second-largest local construction company, and owned for decades by Auckland's McConnell family, was sold to ASX-listed Downer EDI last March for A455.4m. But last month, a liquidators' report showed about $41m was owed to 1000 subcontractors who worked for construction companies formerly part of the Hawkins Group - and not sold to Downer. The liquidators at BDO said they would review related-party transactions and the Downer sale as part of their investigation into 10 companies.

A Hawkins spokesperson said in mid-July the business had annual turnover in the region of $700m and a year's worth of work on the forward order books. Hawkins has about 500 staff.

"Our key clients include the University of Auckland, for whom we are currently building the School of Engineering and the School of Medicine and Population Health – these two projects combined are worth circa $300m. We are also working on the $210m Park Hyatt Auckland project. We have worked on many projects for Auckland International Airport Ltd over the years, including the recently completed Pier B extension.

"Right now we're also building the University of Waikato's new Tauranga campus, the new Farmers development in Tauranga and The Terrace in Christchurch – to name a few. There are no immediate plans to change the Hawkins brand."

New Zealand's active construction scene has attracted many builders from Australia and Asia.

China Construction NZ – a subsidiary of China State Construction Engineering Corp (CSCEC), the world's biggest builder – came to Auckland in 2015.

Its entry was quiet but it won work worth $375m, including the $200m contract to build the Park Hyatt Hotel in Auckland's Wynyard Quarter.

But its second-biggest contract turned sour: the since-ditched $175m St James apartment tower on Queen St in Auckland's CBD. Without those apartments, the historic theatre is closed to the public, partly demolished inside and with a grim future unless millions are found to rescue it. The apartment tower was to provide lifts, disabled access and toilets for the theatre. Now, the site is dead and Steve Bielby, who is heading the renovation effort, has had to put his dreams on hold.

China Construction won both the Park Hyatt and St James contracts with Hawkins.

In 2012, The Economist named CSCEC as the world's biggest builder by revenue, then totalling US72.6b, ahead of China Railway Construction, China Railway Engineering and giant French builder Vinci.

Plans for The Pacifica apartments in downtown Auckland (centre) to the right of the Vero Centre.
Plans for The Pacifica apartments in downtown Auckland (centre) to the right of the Vero Centre.

Today, CSCEC has revenue of about US$100b.

Fu Wah, the developer of the Park Hyatt, is flying in 138 tradespeople to build the hotel in response to our skilled labour shortages.

The industry is closely watching two other Auckland sites and their builders:

• Hengyi Pacific's 178m Pacifica apartments and hotel between Gore St and Commerce St, being built by Icon of Australia in its New Zealand debut.

• Shundi Customs' 187m Seascape Apartments on Customs St East, being built by China Construction.

Icon is headed by New Zealander Dan Ashby, perhaps this country's most experienced high-rise building expert.

Another foreign builder active lately is CPB Contractors, formerly Leighton Contractors, a subsidiary of ASX-listed giant CIMIC Group. CIMIC says CPB Contractors has about 23,000 people working in Australia, New Zealand, Papua New Guinea, Asia and India.

Dan Ashby, building The Pacifica 57-level apartment and hotel block. Photo/Sandra Mu
Dan Ashby, building The Pacifica 57-level apartment and hotel block. Photo/Sandra Mu

Leighton has been in New Zealand for many years, working on projects including the Northern Motorway and in 2016 securing the $300m contract for Christchurch Hospital's new Acute Services Building.

Richard Anderson, a director of quantity surveying, cost management and advisory business Rider Levett Bucknall's Auckland office, says the construction market is extremely busy and businesses continue to report acute labour shortages. Recruitment firms are busy, but migrant labour has helped alleviate some shortages, "with a marked increase in the number of trades workers moving to New Zealand on work visas in recent years."

Although the Government has signalled plans to tighten migration policy, the number of construction workers moving to New Zealand on work visas will remain high, he says, given the amount of construction activity forecast over the coming years.

"Private sector development is likely to face stiff competition from new public sector initiatives, as central and local government pursue their social agendas. New builds for the education sector, large investment in new and maintaining healthcare building stock, plus significant spend on infrastructure related projects in the main centres, will all continue for the foreseeable time. The KiwiBuild programme will further heighten shortages, though the timing and intensity of build for this initiative remains unclear," Anderson says.

Fletcher's withdrawal, he says, has introduced a lot of uncertainty about who will fill the void in carrying out projects of scale, complexity and high dollar value – "typically the Fletcher domain".

"Downer EDI's acquisition of Hawkins makes Hawkins the more likely candidate to step up."

An industry expert ranked New Zealand's builders in order of size and capability, listing general contractors, those his firm worked with and excluding civil and infrastructure firms, specialist fit-out contractors and those outside the greater Auckland area.

• Tier one: Fletcher, Hawkins, ICON, China Construction.
• Tier two: Dominion Constructors, Leighs Construction, Naylor Love, Scarbro Construction, Watts & Hughes, Haydn & Rollett, Ganellan, Cook Brothers Construction, Ebert Construction, Argon Construction, NZ Strong, NZ Built Environments, Canam Construction, Decmil (big in Australia, new start here), Aspec (floats between tier 2 and tier 3) Brosnan Construction and LT McGuinness.
• Tier three: Macrennie Commercial Construction, Gibson O'Connor, Aspec Construction.

Rider Levett Bucknall's latest Construction Market Intelligence report on New Zealand notes the rise of apartment, retirement and residential development last year and the effect on the sector.

"New residential projects continued to dominate the industry in 2017, representing 70 per cent of the total new consents value and 67 per cent of the total new work put in place across the country. New building volumes reached $17.2b for 2017. New residential work continued its double digit year on year growth with an 11 per cent ($1.1b) increase from 2016 results. New non-residential work put in place increased 4.4 per cent for 2017 to $5.6b."

The Government's 100,000-home KiwiBuild programme will further stretch the sector, the report said. "Capacity pressures within the construction sector are unlikely to ease, with KiwiBuild-related construction revenues forecast to become progressively larger over the Government's Budget forecast period (2022) and beyond."

As a way of measuring construction activity, Rider Levett Bucknall compiles the RLB Crane Index, which counts the number of long-term cranes at work around the country. In the first quarter of this year, the survey counted 125 cranes - 83 of them in Auckland, an increase of 10 on the previous survey.

The company expects continued rises in building costs, with tenders forecast to rise more sharply than overall inflation.

According to its surveys, Auckland tender prices rose by 8 per cent last year alone.

Longer term, it doesn't expect increases on that scale to continue. But the big questions remain: who will build the big jobs, and will they be able to make a profit doing so?