Sector needs confidence Lack of certainty over the project pipeline is a key concern for NZ's infrastructure industry, reports Bill Bennett.
Aecom NZ managing director Craig Davidson says while certainty has always been an issue for the industry, it has moved centre stage in recent weeks.
"A new Government has come in with very different priorities," Davidson says. "That's turned the infrastructure industry on its head, particularly the roading side.
"We're seeing the impact of that in the projects we've tendered for and also with our partners and contractors."
Aecom NZ runs an annual survey monitoring sentiment in the infrastructure and buildings construction industry. Davidson says the latest survey identifies the risks of uncertainty around the projects pipeline. People don't know for sure what is going to be done and when.
The Labour-led Government has switched the national priority away from road building towards public transport projects.
Davidson says the Government talks of $28b of investment in Auckland transport infrastructure alone.
Though that sounds good, "when you drill down into where that money is being spent, there are next to no shovel-ready projects for the industry to pick up on.
"Take the $6b-plus commitment to light rail. At this stage there's no flesh on what that actually means for contractors and consultants.
"Light rail has replaced road projects like Mill Road, the East-West link and the Tauranga Northern Link. These were a long way through the consenting and design process."
The industry has been geared up for a certain type of project ever since the National Government put a huge amount of investment into the Roads of National Significance programme which started in 2008. These are all now coming to an end.
Davidson says the industry was expecting those kinds of projects to continue, but we've "turned the dial to address public transport".
He says it not a question of whether one approach or the other is good or bad.
"It's more that Labour's infrastructure priorities are very different to National's," he explains. "Now we have Simon Bridges saying that a future National government would not do the light rail project in the same shape or form as Labour."
The projects in question are big and complex. To do them well requires international expertise.
Davidson says we haven't built a light rail project in New Zealand before. "This means we have a choice of trying to do it ourselves or we can try and leverage the best of global expertise for design and construction.
"It's the kind of project Aecom has worked on overseas so it could pull in experts for the job."
There's another issue here. Procurement costs in this country are high by international standards.
Davidson says one reason for higher costs in New Zealand are delays and deferrals of projects. This applies to the last three road projects put in place by National.
He says: "The Mill Road project went out to tender. It had design consultancies tender for the work. They submitted tenders and the evaluation started. Then the new government canned the project. As much as $2 million had been invested in tendering. That's an opportunity cost for NZ Inc."
The cost to win a dollar of work is also substantially higher here than overseas. In particular, the US, the Middle East and Asia are cheaper.
In part this is because our project sizes are smaller.
There is also a tendency to break up projects into components.
Davidson warns that if you overlay procurement issues with a reasonable chance of a National government being returned at the next election and halting projects, you don't have the best conditions for the international infrastructure market to want to operate in New Zealand.
A worldwide boom in infrastructure projects amplifies this.
For instance, there are major rail projects either being planned or under way in all the main cities along Australia's East Coast. "If you were a contractor looking at where to invest your best and brightest people, your money, do you have that kind of certainty in New Zealand?"
Aecom's 2018 sentiment survey highlighted another disconnect between the organisations, usually government, funding infrastructure projects and the firms doing the work.
Governments tend to think certainty is about identifying a need for a project, giving it the green light and then setting aside the money.
Industry requires more information for its version of certainty. They need to know more about the project details, when it is due to be delivered and how is it going to be procured.
Davidson says without that, the industry is not able to invest in recruiting people, training or investing in the plant and equipment.
Large organisations need certainty to invest and grow. Without certainty, they rely instead on large numbers of small subcontractors they can cut at any stage.
This is often not the most efficient approach.
Davidson says one problem is that infrastructure gets votes for politicians but the timeframes for projects typically outlast election cycles. Many would outlast even a three-term New Zealand government he says, singling out Auckland's City Rail project as an example of how long things can take.
New Zealand's three-year election cycle also comes with its own set of problems.
Davidson says there is a danger projects can be fast-tracked so they are started and reach the point of no return. That way the next party to enter government has no choice but to carry on with them.
"Rather than building political consensus, they spend a whole lot of money so it's not possible to go back."
Infrastructure New Zealand offers a way out of having projects tied too closely to politics — It has proposed an independent infrastructure body or "i-body".
Davidson says most countries have some kind of independent infrastructure organisation. The idea is that it looks at the country's infrastructure needs then draws up a list of priority recommendations where a government can get the best return on its investment dollars.
He says it needs to be made up of high calibre industry experts and they need to be able to look across the various government departments.
Governments still get a final say on projects, but the pipeline is far more certain and that means the industry can better marshal resources.
2018 Aecom Report
● Sentiment remains optimistic; however there has been a softening since 2017.
Key drivers of the sentiment decline are the market's desire for improved confidence in the pipeline of project and transparency around funding.
● Workload expectations in the country's infrastructure market are up slightly with more than 70 per cent of respondents expecting investment levels to remain steady or rise over the next three years.
● Expectations in Auckland have softened for the first time in four years, while Hamilton and Wellington have experienced a subtle decline in those with a positive outlook.
● Christchurch is continuing its downwards pattern — likely reflective of the major infrastructure projects due for completion in the next two years and an unclear outlook into further prospective projects.
● Sentiment in the vertical market is experiencing a significant softening, with all regions reporting less confidence in the forward workload.
● Of note, Christchurch dropped by nearly 20 percentage points from the 2017 survey with respondents now expecting an overall decrease in workload over the next year
● There is a clear need to take a step back and redefine what success is going to look like for the city, with respondents expressing a need for increasingly strong leadership to drive progress and a cohesive vision to move forward.