Geoff Hunt and David Kelly: Next government needs a minister for construction
10 Oct, 2017
Construction accounts for 6.1 per cent of GDP and 9 per cent of jobs.
Photo / Nick Reed NZ Herald
By: Geoff Hunt and David Kelly
(Geoff Hunt is chairman of the Construction Strategy Group. David Kelly is president of the New Zealand Construction Industry Council).
Faced with a continuing demand to provide the country's immediate housing and infrastructure needs, the incoming Government has a pivotal role to play in setting an environment that enables and supports the construction sector to deliver the quality of performance society demands.
The recent fuel pipeline and supply disruption that led to the country having to cancel many domestic and international flights, and the legacy of leaky home and apartment builds, highlight infrastructure and building woes.
What is needed is a political champion with a powerful mandate to lead the commitment of industry and government to better performance.
The infrastructure plan for New Zealand, including housing and buildings, has an estimated spend of more than $30 billion each year for the period 2017-22. This is groundbreaking. But it will only be realised if there is the will for government to partner with industry in establishing a transformational framework responsive to needs.
This involves regulation, prioritisation and co-ordination of investment.
The construction sector is one of New Zealand's transformational powerhouses. It has always played a pivotal role in New Zealand's growth and development. It is a considerable contributor to national wealth, worth 6.1 per cent of GDP ($14 billion).
It is also the fourth largest sector by employment, making up 9 per cent of total jobs.
The growth of the construction industry was highlighted in a PwC Report (Valuing the role of Construction in the New Zealand economy) in 2016. This identified the many benefits the sector brings. Moreover, it has changed over the years and reflects a contemporary demographic of more women in the workforce, higher-skilled jobs and demand for simplified procurement.
The demand for construction is phenomenal - 13,000 new homes are needed in Auckland alone every year to meet demographic growth, along with 55,000 skilled workers essential to deliver this scale of building.
Party leaders on all sides of the political divide promise new home building on a massive scale by New Zealand standards. Let's not forget that even small, incremental lifts in productivity for the sector can have huge benefits.
A core part of improving productivity is better project procurement and execution. It is estimated that every 5 per cent increase in labour productivity for construction yields a saving of $1.5 billion annually. Imagine being able to fund one of New Zealand's largest infrastructure projects like the Waterview tunnel every year based on such a small lift of construction productivity.
A big step forward will be prioritising the importance of the construction industry by assigning a new senior Minister of Construction and Infrastructure to champion the sector, and bring fresh ideas and enthusiasm. A linkage of the construction and infrastructure portfolios would signal this.
We cannot afford the construction sector to be marginalised and responsibility spread across various ministers and split between an already overburdened department, the Ministry of Business, Innovation and Employment (MBIE), and other state agencies.
A strong focus is needed on reforms to strengthen vocational training in the building trades sector. Administration of trade licensing requires similar attention to allow faster adaptation to new trends and to correct weaknesses identified by industry.
Better enforcement of quality residential construction is urgent, along with more assurance that materials and products are fit for purpose.
Essential innovations are needed to modernise procurement contracts and practices. A lack of consistency in procurement contracts and use of non-standard agreements means there is considerable added cost and time delays. These added costs spread through the construction chain and ultimately create inefficiencies.
The lack of large project quality procurement hinders the ability of the industry to gear up and deliver at scale.
The industry and government need to discuss how risk is allocated - to whom and why.
Currently risk, and who should take it, is often not adequately discussed at the start of the procurement process. Many contracts therefore end up with a totally unbalanced allocation of risk. This is a powerful brake to innovative development. It adds significantly to risk contingencies provided for in tender documents.
These provisions may never be realised but they push up the price. There is scope here also for leadership from government.
It is our view that construction should be at the top of the priority list when portfolios are assigned and decisions made on resource allocations by the new government. The benefits of a fresh partnership-approach, championed at the highest level by a Minister of Construction and Infrastructure, would flow through every part of New Zealand for generations to come.