22 August 2019

Infrastructure Commission has a multi-billion dollar opportunity to add value through procurement

“The infrastructure sector sees a major role for the New Zealand Infrastructure Commission/Te Waihanga in lifting the nation’s sagging infrastructure performance,” says Paul Blair, incoming CEO of Infrastructure NZ.

“Nearly three quarters of industry respondents to our 2019 Infrastructure Procurement Survey identified the need for the Commission to support government agencies in the procurement and delivery of their major infrastructure projects.

“The procurement performance in New Zealand has fallen in the last two years, both in the public and private sector.”

“Infrastructure New Zealand, Civil Contractors and Construction Strategy Group’s 2018 ‘Creating Value Through Procurement’ report showed that worlds best practise procurement could save 5-15% of project value and improve the health of the wider industry. Given New Zealand’s $129 billion, 10-year infrastructure pipeline, it is obvious to us that a fully staffed, independent, well-funded Infrastructure Commission can create billions of dollars of potential value which can be equitably shared into more infrastructure projects, more sustainable margins for contractors, fairer allocation of risk, certainty of employment and investment in skills and industry capacity.” says Blair.

Peter Silcock, CEO of Civil Contractors NZ, who supported the survey, observes that “the industry has suffered from a series of stop-and-go cycles. Companies have had to rapidly import and invest in talent and resources in new sectors, only to see that investment squandered as project priorities change.”

Blair notes that, “on top of industry-wide effects, such as boom-bust cycles, there have also been organisation-specific declines that had the effect of pulling down overall procurement performance in the two years since our last survey.

“However, the decline in performance may also be due to the lack of consistency in the infrastructure and construction industries.

“Reinforcing this concern, 80 per cent of respondents reiterated the need for the Commission to publish a pipeline of major infrastructure projects to provide the confidence and assurance that industry needs to invest in long-term talent and resources,” says Blair.

“The ability to plan long-term is essential to a healthy and successful construction industry. It leads to savings for governments, taxpayers, and users alike,” says David Kelly, Chief Executive of the Registered Master Builders Association, who also supported the survey.

“Some organisations are strong examples of procurement performance,” Blair notes.

“The four largest ports, Auckland, Lyttelton, Napier, and Tauranga, collectively outperformed the rest of the pack and stole the title of best performer from 2017’s leader, the New Zealand Transport Agency.

“Our survey found that they excelled because they have a high level, outcomes-focused approach to projects and treat their suppliers and contractors as partners - strengths that often are lacking in lower performing procurement agencies.

“The survey also asked public sector suppliers to evaluate how the private sector performs when it fulfils their contracts. Public sector respondents pointed to weaknesses in the smaller, less-experienced suppliers.

“It seems that, similar to the public sector, size and experience is an advantage in procurement processes. There is an opportunity for the Commission to help smaller public and private sector organisations lift their procurement expertise.

“The survey found many respondents wanted the Commission to have real power to make a difference for the sector.

“The sector wants an Infrastructure Commission that can not only encourage change, but track and enforce it, if necessary.

“I am encouraged that the Treasury’s Infrastructure Transactions Unit, which will merge into the Infrastructure Commission in October, has acknowledged many of the industry concerns in its August 2019 report, ‘An examination of the issues associated with the use of the NZS Conditions of Contract”. This report highlights the culture of mistrust between public and private sector, a skill gap in the public sector around construction, that the public sector does not understand the difference between lowest cost and value for money, and several issues relating to excessive risk transfer from public to private sector.

“These industry reports create a clear blueprint for the Infrastructure Commission to execute change at pace to create a world class infrastructure platform for the benefit of all New Zealanders,” Blair says.

The Infrastructure Procurement Survey was conducted by Infrastructure NZ in partnership with Civil Contractors NZ and the Registered Master Builders Association. It had over 160 responses from senior leaders in New Zealand’s engineering, construction and contracting, professional advisory, and public service sectors.

The survey received over 450 individual ratings on 38 different public and private sector agencies that procure infrastructure projects in excess of $15 million.

Click here to view the survey results, presented today at the Building Nations Symposium 2019.

ENDS

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