Just months after the Government announced a landmark accord with the construction sector – and days after two more firms collapsed, leaving millions in debts to sub-contractors – Minister for Economic Development Phil Twyford found himself on the wrong end of a barrage of hostile questions from industry leaders.
The fourth annual Constructive convention focused on anxieties spanning from stringent regulations, unfair risk allocation in the procurement process and a tense global economic situation.
Companies taking on too much risk
Attendees and panel members made clear that firms were being asked to take on too much risk when working on Government projects. This was highlighted by the collapse of the 92-year-old Stanley Group and a related company, Tallwood, over the weekend.
The companies had been contracted to work on Housing New Zealand projects in Mangere, Hamilton and Whakatane that remain unfinished. Stuff reported on Sunday that Stanley Group owed creditors about $5 million.
Stanley Group’s demise was seen at Thursday’s convention as the inevitable result of a Government procurement process that puts too much risk on developers.
Quin Henderson, the managing director of Southbase Construction, told the audience that he “sat in a room yesterday with five representatives of a Government department and I was asked to sign a contract that had the big four risks in it”.
Those risks include: limiting profit margins to a specific, single-digit percentage; the client holding a retention on Southbase that was larger than the profit margin for 12 months; and guaranteeing that the plans drawn up by the client were fit for purpose.
“I didn’t write them,” Henderson said of the plans.
“There was no desire whatsoever for any of those people in that room to change anything in that contract, whatsoever.”
Graham Burke, the president of the Specialist Trade Contractors Federation, said that the industry bore some responsibility for implementing these changes. “It’s up to the industry to start doing some of this stuff themselves,” he said.
“Head contractors actually need to walk away from jobs if they’re not going to make any money out of it, if they can’t mitigate the risk of the contacts. Subcontractors have to start looking at who they’re working for.”
Twyford battles off critics
That’s the same point that Twyford tried to make as he and Minister for Building and Construction Jenny Salesa faced a pointed line of questioning from the audience.
It was at last year’s Constructive gathering that the idea of an accord between industry and Government was first proposed. The agreement came into being in April and the details are now being hammered out. The final version of the accord is set to pass through Cabinet in December, according to Twyford.
” … this is an accord. It’s a partnership. It’s not just about you holding Government to account.”
Sector leaders at this year’s forum were disappointed with a lack of change over the past 12 months, however. Last year, Constructive was overshadowed by the collapse in previous months of Ebert Construction, Arrow International and Corbell Construction. This year was the same, only with different firms, some felt.
Industry representatives repeatedly asked Twyford and Salesa to demonstrate how they had instructed their departments to match the sentiments of the industry accord with a change in attitude from the public service, but the ministers could only point to changes in procurement rules slated to come into effect in October.
In the end, all Twyford could offer was a gentle rebuke of the construction sector. “The point I want to make here is that this is an accord. It’s a partnership. It’s not just about you holding Government to account.”
When the moderator attempted to interject, Twyford thrust out his hand. “Hang on, let me finish,” he said, to uncomfortable chuckles from the audience.
“It’s about the industry stepping up and finally demonstrating some leadership alongside Government to tackle these problems,” Twyford said, as people in the crowd shook their heads in disapproval.
“Government is not the white knight that is going to ride in here and solve all your problems. If you look at the company collapses that we’ve seen, that are of such a concern to all of us, they’re as much a result of poor practices and poor decision-making and poor-quality leadership in the industry as they are of Government as a customer.”
“This is a two-way street, it’s about us both stepping up and lifting our game.”