By Jeremy Sole
CEO, NZ Contractors' Federation
If you are having the same experiences as I am at the moment then people will be telling you how lucky you are to be in the civil construction and general contracting industry – given all the money Government is pouring into it.
I even got this from a senior member of parliament a couple of weeks ago, actually from two of them, and my response was that I sincerely hope there is still a viable industry available to construct all the major projects in two to three years time when the construction phases kick in big time. This produced a somewhat quizzical look which turned to a furrowed brow when I spoke of the employment survey of 300 contracting businesses that showed they had laid off more than 1400 people in the last six months and expected more to follow – that’s seven percent of the civil construction workforce gone and another four percent yet to go.
Given everyone in the industry, and sometimes it seems everyone in New Zealand, knows that the civil construction industry goes through severe boom bust cycles, it seems somewhat surreal that we are again heading toward a period of intense construction while tossing out staff on the way so as to ensure the industry stays afloat until the wave gets here. And of course the next part of that story could be about how the wave swamps the industry.
Fortunately, after the last couple of weeks, this is less likely to happen. The Contractors’ Federation has been taking part in delegations to the NZ Transport Agency and to the Beehive to draw attention to the plight of the industry and we have been well received.
By the time you are reading this, these words will already be out of date as we are expecting to hear from both NZTA and from Transport Minister Stephen Joyce about bringing work forward through more collaborative purchasing at the small to medium project sizes, and about ways that Local Government can be assisted and or encouraged to ensure they spend all their allotted NZTA funds. The industry has asked the minister to ensure that an additional $200 million finds its way into projects in early 2010.
Some actions discussed with the minister and NZTA include: accelerated and more ECI projects, more design and construct contracts to get projects out to market faster, bringing forward some to the upgrades associated with the new VDM rules (eg. between Tauranga and Auckland with several realignments and bridge jobs), possibility for NZTA pushing local government harder to fulfill their annual spending commitments, as well as the possibility of releasing some more funds and also reallocating funds away from local councils who cannot commit to completing their spending programmes before the end of the year.
It’s a solid wish list and it may not all be possible, but we are confident that there will be more work available in the early part of 2010.
In the mean time, contractors are cutting or even eliminating margins to ensure they still have viable businesses for when the upturn begins. Recently the Federation had a wee media spat with a district council when its roading engineer was quoted in the local paper as saying that having been previously “hammered at the tender box” the council was delighted to have let several major works contracts at prices vastly lower than or very close to estimates made last year. And this comes at the same point in the economic cycle where NZTA has been telling contractors that they have to stop submitting unsustainably low tenders because of the increased risks of non completion, increased variation claims, poor quality work, and compromised whole of life cost expectations.
There is a worrying lack of understanding in some councils of the many overheads contractors have to factor into a tender as a result of running capital intensive businesses with unpredictable workloads and cash flows. Also, more recently, the increased expenses as a result of the growing practice of local authorities placing more of the unknown risks onto the contractors through a variety of obscure contract modifications. The cost of risks is always going to be in a project’s ‘system’ and so it is always going to be borne somewhere. But some councils fail to understand that these costs don’t just go away because they are contracted out – they just get priced in at a different stage. If they go with a shonky low price operator who doesn’t understand or price the risk, they are opening themselves up for even greater costs.
Equally many contractors will not be fully aware of the myriad pressures councils and their officers face in the decision making process – from LTCCPs, to internal political processes, to the skill levels and understanding of some elected officials with limited civil works experience, to tight expenditure expectations and legal responsibilities, and of course the pressure to meet ratepayers’ demands.
Much of this lack of understanding on both sides is simply down to a lack of communication and historically poor relationships between the parties. This lack of a common understanding of how to deal with risk has taken a terrible toll on the relationships between elected councilors, council officers, consulting engineers and contractors over time and, as a result, discussions between councils and contractors and others involved on a project are often simply too little and too late and full of tensions.
This negatively affects perceptions on both sides, resulting in preconceptions and prejudices that hamper the tendering and project process. It is not healthy that these parties, that are collectively in the driving position to affect the lifetime value of projects, often end up at loggerheads and this is going to be a strong part of the Federation’s focus for 2010. I trust you have all had at least some restful time over the Christmas period – you’re going to need the energy for what promises to be a very strong recovery for the sector in 2010.
Contractor Vol.34 No.1 February 2010
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