Construction project information, better procurement needed

Project information and better procurement essential to raising construction productivity and value

Media Statement
16 December 2013

“The Productivity Partnership-commissioned National Construction Pipeline released recently is an important step to understanding the scale of New Zealand’s building and infrastructure challenge, but to lift the performance of the sector the future work programme must be project specific, well sequenced and utilise best in class procurement capability,” says NZ Council for Infrastructure Development chief executive Stephen Selwood.

“It’s encouraging to see well-evidenced information being produced and published on the projected value of the forward work programme in key regions and nationally and across residential and non-residential sectors.

“Knowing, for example, that the Canterbury rebuild will likely peak in 2015 and remain elevated until 2018 will give contractors in the region the confidence to take on or up-skill staff, suppliers to gear up and students the option to pick up a trade for a very positive period ahead.

"But bringing projects to market in a well-sequenced cogent programme, making timely decisions, providing transparent communication of information to suppliers and service providers and conforming with stated bidding processes and timelines is also key to unlocking value.

"Already, there are several instances where investors and major construction firms have made considered decisions to withdraw from the rebuild having to that time funded business development and taken part in market briefings, bid processes and being otherwise prepared to engage in competitive processes.

"Given the significance of the forward work programme, adopting best practice procurement is critical if the Government and Council are to extract best value for tax payers and rate payers.

"The Auditor General recently endorsed procurement practices used by the SCIRT alliance (Stronger Canterbury Infrastructure Rebuild Team), and NZ Transport Agency is generally regarded as a leader in procurement of major projects in New Zealand. Both provide good examples to follow.

"A dedicated high performance procurement agency acting on behalf of both Government and the Christchurch City Council remains an option worthy of consideration - especially noting that CERA has only two years to run under current statutory arrangements.

“On the national front, large contractors and other corporates will be able to use the National Construction Pipeline information to develop strategies for capital raising, product development, labour specialisation and market positioning.

“But if the businesses involved in meeting New Zealand’s infrastructure, housing and commercial building needs are to have the capacity available when required, much greater transparency at the project level is required.

“The timing of large projects, such as when requests for proposals will be released and what the intended construction timeframes are, as well as potential procurement options, are all essential to a market which has to deal with lumpy, complex investments requiring long lead-in times.

“The market can operate in an environment where projects are announced with little warning, arrive in clusters followed by periods of relative calm and where expectations for finance requirements or project bundling are frequently thwarted.

“But it’s a question of, ‘at what cost?’ Boom-bust project procurement is not only inefficient for the industry it results in much higher costs for clients. Firms invest short term, underinvest in training and incur significantly increased costs of scaling up and scaling down to meet market demands. Inevitably prices rise in the boom and firms go bust when the project pipeline stops.

“Since the public sector has long term certainty over revenue sourced from taxes, rates and charges it is in a unique position to plan and implement asset replacement and renewal on a medium term horizon and be ready to profit from counter cyclical investment.

“The better the planning, the better will be the value for money for tax payers and ratepayers.

“That’s why as much detail as possible is required about not only the aggregate value of work expected across the building and construction sector, but also detail about the type and expected timing of projects and how they will be procured.

“A lot of expectation now hangs over the release of Treasury’s much anticipated Ten Year Capital Intentions Plan, due out early next year, and continued improvement to procurement in Christchurch,” Selwood says.

ENDS

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