Government agencies will be asked to stick more closely to procurement guidelines to support the troubled construction sector, with Infrastructure Minister Shane Jones warning the industry must reset or “contemplate certain death”.
The amount of risk being taken on by construction firms through Government contracts may also be reviewed, although Jones says the Government will do nothing that increases taxpayer liability.
Government ministers held talks with commercial construction industry representatives on Monday morning, as concerns swirl about the sector following the collapse of major player Ebert Construction last week.
Building and Construction Minister Jenny Salesa said she would be taking an oral item to Cabinet following the “very productive, very positive meeting”, asking ministers to ensure their agencies and departments were adhering more closely to MBIE’s Government procurement guidelines.
“The majority of contracts in this area are actually private sector, however we’ve made a decision to take leadership in what it is that we in terms of our procurement process do in Government.”
Salesa said Government agencies had not always adhered to taking a “whole of life” approach for contracting, and would seek advice from MBIE about how it could take a leadership position on the issue.
Different risk approach
Housing and Urban Development Minister Phil Twyford said the Government and commercial construction firms could also learn from the different approach to risk allocation taken by civil contractors working on horizontal infrastructure, such as roading and the three waters.
“It’s more a collaborative approach, it’s a negotiated and transparent approach to risk sharing, so maybe we can learn some lessons from that part of the industry for the vertical infrastructure sector.”
Jones described the current problems facing the construction sector as “a health episode” which the Government and the industry needed to tackle before things deteriorated.
“When a health episode strikes either an organisation, a sector or an individual, you do a reset or you contemplate certain death…
“Let’s call a spade a spade: we’ve had Ebert, we’ve had the red ink from Fletchers, we’re not ignorant of the fact there’s a lot of pain and pressure there.”
Jones said the Government had a duty to do “nothing that worsens taxpayer liability”, but also needed to do whatever it could to ensure the sector could survive and thrive.
“What are we going to do, outsource everything internationally if we can’t keep a robust and sustainable construction sector in New Zealand? Our Government’s not interested in outsourcing that to that level of international inputs.”
Asked by Newsroom Pro whether construction firms needed greater certainty from the Government in terms of future projects, Jones said that critique was “on the button”.
“The infrastructure suppliers, investors, they’re basically saying we’re not giving enough clarity and we’re not enabling people to plan over several election cycles…I genuinely believe that’s a legitimate criticism.”
Industry: Different mindset needed
Registered Master Builders chief executive David Kelly said the sector appreciated the political leadership being shown by the Government, as well as the commitments it had made.
“I think it’s a very good start, we have to start with some simple things we do right now…and we’ll build on that.”
Kelly said the sector was developing its own guidance to help members understand the risk they were taking on, which would be released at an annual industry forum next week.
Too many construction clients went for the “least cost” model without understanding the longer term damage that did to both the industry and New Zealand, he said.
“This industry is strategically important to New Zealand: it is important to our economy, it is important to our social fabric.
“If you start from that point of view you have quite a different mindset around the whole procurement approach.”