By Jeremy Sole
CEO, NZ Contractors' Federation
Last year was a dreadful year for many contracting businesses and equipment suppliers.
The federation conducted a survey of job numbers in the industry in late 2009 and found the workforce had declined by almost 12 percent over six months, especially in the latter part of what should have been the strongest phase of the construction season.
At the same time, the Equipment Suppliers Association was talking of around 1000 job losses in their part of the sector and potential closure of a number of services and facilities. By late November there were around 20 equipment supply firms competing in a market that wasn’t big enough previously to keep any one of them in business. Many of them also having significant surplus stock because of the sudden onset of the recession, compounded by early deliveries of next season’s orders as a result of global order cancellations and subsequent production overruns.
The year was a ‘perfect storm’ scenario for the industry, with the global recession causing private funds to dry up, a resulting freeze in property development, the slowing down of local government spending, and the time required in getting new major infrastructure projects to the point of being ready for construction.
On that front, it seems to me at least, that while there were a number of significant infrastructure projects constructed in the previous six years or so, most of these had been on the drawing board for a number of years before that – and most had their genesis under National’s previous Transport Minister Maurice Williamson’s guidance in the 1990s.
While these projects were being rolled out by the subsequent government, there didn’t appear to be a focus on filling the drawer with additional significant future projects. Of course the primary reason the drawer wasn’t full would have been that the Labour Government’s transport policies were targeted directly at ‘modal shift’ and CO2 reduction rather than roading.
But that’s another story – this one is about how a change in philosophy in the Government Policy Statement on Transport Funding caused many proposed construction projects to get cancelled and new projects to come into the system. As a result there is, inevitably, a period where the number of projects under way is insufficient to support the civil construction industry.
Fortunately the NZ Transport Agency and the Government recognised the potential damage this would do to the industry, and some innovative and forward thinking procurement decisions have been implemented.
One positive initiative by Transport Minister Steven Joyce is the three-year funding cycle for the NZTA, rather than the previous annual cycle. This has been the saving grace for the industry as the NZTA now has the ability to bring some of next season’s scheduled maintenance, renewal and construction projects forward to fill the gap and to capitalise on what Joyce sees as the current ‘favourable purchasing environment’.
We all know the major infrastructure projects are on stream again now, however the ‘start from scratch’ design, consultation and consenting processes mean many of these will not be ‘shovel ready’ for several years even with the new EPA call-in facility.
When put in the context of an industry looking at a huge wall of work coming up in the next two years, it foreshadowed a disaster for the industry and for a Government which has invested a huge amount of political capital into an infrastructure led growth phase for the economy.
In the dying days of December 2009 the federation was part of industry delegations to the NZTA and to Stephen Joyce to discuss the crisis the industry was facing. Joyce agreed with our assessment that the industry was in crisis and that it was conceivable that, if nothing was done to support the industry, it may not retain the capacity to construct the $10 billion of projects coming off the drawing board from 2011 onwards.
The result was an immediate additional $10 million spend, approved by the minister and brought forward to early 2010 (which should be well under way by now).
This was an interesting exercise as some industry representatives lobbied for this work to be almost entirely put out to the market by direct negotiation with the large firms and for the second level players to accept work on a subcontractor basis.
The federation argued that the purpose of the initiative was to provide a lifeline for the industry and that hand feeding a small select group was not going to achieve this. We argued that the industry needs a strong set of second level players for it to remain healthy and retain competition and innovation, and that all NZTA contracted contractors should have opportunity to tender for the additional work.
In the end the NZTA agreed to put a significant percentage out for competitive tender to existing NZTA contract holders and the balance to be contracted through direct negotiation. We felt this was a reasonable balance given the urgency involved in getting the work out to market.
In January we further liaised with the NZTA and, at the time of writing, the federation received a copy of an NZTA memo encouraging regional offices to work with local government organisations to bring their spending forward as well.
We anticipate this will bring another $50 to $60 million in construction work in the first part of 2010. It is our expectation that this concept of bringing work forward to capitalise on the favourable purchasing environment will flow through the councils’ thinking and will be applied to other types of works on council agendas.
If it does, then we will have gone a long way toward interrupting the boom bust mechanisms our industry has been plagued by for so long – and 2010 will be a good year for everyone.
Contractor Vol.34 No.2 March 2010
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