Opinion: Construction industry and Govt must work together on risk

Anyone building or renovating a home, let alone a multimillion dollar construction project, appreciates that there needs to be some flexibility in adjusting for costs. Picture / Getty Images

Opinion

The demise of certain high-profile large construction projects was one of the talking points in the media in the second half of 2017. Why did they occur and how can we ensure 2018 is not marred with the same issues?

This is not something the industry can solve alone. We need to work with government to improve the way we manage pricing and risk in our sector.

Government procurement should not be an exercise in one party minimising all their risk. At the end of the day, all parties need to commit to working collaboratively and equitably to deliver on a project.

Anyone building or renovating a home, let alone a multimillion dollar construction project, appreciates that there needs to be some flexibility in adjusting for costs.

I am not across all the detail, but the Christchurch Justice and Emergency Services Precinct, the Metro Sports Centre and the New Zealand International Convention Centre (NZICC) show that some aspects of the current contracting model may not be fit for purpose.

There needs to be more collaboration between Government and industry to understand risk and how to balance it. It is not just an issue for New Zealand. Carrillion's collapse in the UK has highlighted shortcomings in how procurement is managed there too.

We need to move away from focussing on cheapest initial price – this never gets the best result, limits innovation and stifles research and development. Technology and innovation are central to addressing problems that have become inherent in the construction sector, which means the Government needs to be more realistic in pricing contracts.

Greater Christchurch Regeneration Minister Megan Woods spoke positively about the need for change, saying we cannot stick to the same old approaches and expect different outcomes.

The industry agrees that things need to change. Early contractor involvement is one way to identify potential issues and be realistic with costings.

However, it is not the silver bullet and cannot substitute for people with experience in the industry who know how to get value for their clients without passing on all the risk.

We also have some good examples that show how things can go well. I am aware that NZTA's approach to procurement is cited as an exemplar by some major contractors. Many DHB and university projects have been successful. Much of this stems from them having people that understand the process and there is a mutual understanding about the realities of contracting.

In the current construction boom, there is a plethora of projects to bid for. And with the recent damage to some high-profile companies, the sector is getting smarter. Construction companies will walk away from a project if they are not fairly procured.

This conversation is not limited to commercial building. It also translates into residential, with a need to educate homeowners as well as the industry about pricing and taking a 'whole of life' approach to everything we build.

New Zealand needs to get this right. We will keep talking to Government and welcome your input.

David Kelly, is the chief executive of the Registered Master Builders Association