Construction industry still awaiting benefits of govt accord

Thursday 12th September 2019

Government departments are still trying to foist onerous contracts on building companies, notwithstanding the Construction Industry Accord signed in April, Southbase chief executive Quin Henderson told an industry forum in Wellington.

Henderson cited a meeting he has just had with one group of officials in which they continued to insist he put his business on the line and assume unacceptable levels of risk.

"There was no desire whatsoever by any of the people in that room to change the contract whatsoever," he said.

While stick builders - builders who build a single house from scratch - are operating on 20 percent margins, companies like Southbase are working on contracts worth $100 million, taking "a shit-load of risk" with a 5 percent margin "on a good day," he said.

While he expressed "cautious optimism" about the construction sector, Henderson said he is reserving judgement on the value of the accord between government and industry.

When Building and Construction Minister Jenny Salesa was asked why companies such as Southbase have yet to see any improvements in the approach of government to construction contracts, she told the forum that new procurement rules won't come into effect until October.

"Cabinet has already made a decision. From October of this year, we will have better procurement practices," Salesa said.

She was repeatedly asked whether this would include preventing future contracts from containing 197 pages of special conditions, as the contract for one Christchurch project did.

Eventually, her colleague, Urban Development Minister Phil Twyford, stepped in to acknowledge that the proliferation of special conditions attached to government contracts was one practice that had been used to force construction companies to take on additional risks.

The new procurement rules "means fewer special conditions," Twyford said.

Fletcher Building famously lost more than $400 million constructing the Christchurch Justice and Emergency Services Precinct in Christchurch - the contract that had come with 197 pages of special conditions. It was part of the near $1 billion in losses Fletcher's Building + Interiors unit, the one responsible for constructing high-rise buildings, has made.

Other construction companies involved in government contracts, including Ebert, Orange H and Arrow International, have collapsed.

Salesa said the new procurement guidelines will cover about $41 billion of work that the government contracts annually. They will require state agencies to take into account factors such as what contractors are doing to train and develop the skills of their staff, rather than seeking the lowest-priced bid.

In February last year, Fletcher Building chief executive Ross Taylor said Fletcher's B+I unit would cease bidding for new contracts because the high-rise construction sector "remains characterised by high contract risk and low margins.

More recently, Taylor has said Fletcher will return to the sector, although he indicated new contracts were still some time away. Fletcher's head of the construction division, Peter Reidy, led the development of the industry accord.

Twyford acknowledged the failure to date of the government's KiwiBuild programme "has been a chastening experience."

The government is committed to the construction accord but it is a partnership, he said.

"It's not just about holding the government to account. It's about the industry stepping up and finally taking some leadership," he said.

"The government is not a white knight that's going to ride in and solve all the problems."

"The industry's problems were just as much the fault of poor decision-making and leadership," Twyford said.

"This is a two-way street. It's about both of us stepping up and lifting our game."

Other things the ministers said they are working on include changing the Building Act to improve consenting processes and to better cater for pre-fabricated building manufacture.

"The consenting process is actually not working too well at the moment," Salesa said, and that was one reason she is working on changing the act.

Andrew Bayly, National Party spokesman on building and construction, spoke after the ministers.

"I think what we just saw is two ministers who have never been at the coal face. They didn't understand what a contract looks like."

(BusinessDesk)

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