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I am excited to relaunch Build Up, our newsletter for our Commercial and Head Contractor members.
Some of you may remember the newsletter from its ‘Commercially Minded’ days which was originally launched in 2017. The name may have changed; however, the relevance remains the same as slowdown and high interest rates have significantly impacted the building and construction sector leading to reduced workloads and financial strain. Supply chain disruptions along with rising construction costs have further exacerbated these issues, resulting in higher prices for building materials and increased project costs.
Those in the vertical construction sector are not immune to the recession. Building consent data shows a drop of over 20% from 2022, the lowest levels in 20 years. Feedback from our Commercial Working Group (CWG) and Vertical Construction Leaders Group (VCLG) echoes that it is a challenging environment and while opportunities exist, they are increasingly difficult to secure. An update on recent work from both groups is included in this newsletter.
Despite these headwinds, I believe that the construction sector remains fundamentally strong, supported by ongoing demand for building, construction and infrastructure. While the International Monetary Fund (IMF) forecasts slow growth in 2024, they anticipate a rebound in 2025 as external conditions improve and monetary policy relaxes.
New Zealand Commercial Project Awards 2024
Furthermore, we continue to see outstanding quality and remarkable collaboration in commercial projects. Just recently, Master Builders had the honour of hosting the New Zealand Commercial Project Awards on May 24 at the Tākina Convention Centre in Wellington.
It was our biggest event to date, with 660 attendees celebrating more than 100 entries, showcasing an exceptional standard of work. Congratulations to all awardees. Special recognition goes to our Supreme Award winners: Canam Commercial for the Whangarei Civic Centre project (Over $10 million category) and the Unispace team for their fit-out of the Arup offices in Auckland (Under $10 million category). A heartfelt thank you to our sponsors and judges for their invaluable contributions.
We were privileged to have Minister Chris Bishop attend and speak at the event. His endorsement of the Master Builders vision of ‘Building a Better New Zealand’ as his own was warmly received.
Budget 2024
The first budget from the coalition government held no surprises. Key highlights include:
- $2.68 billion over four years for roads, rail, and public transport, including 17 new Roads of National Significance and funding for the Rail Network Investment Programme.
- $1.2 billion over three years for regional infrastructure, including $200 million for flood resilience.
- Over $1 billion for the rebuild and recovery of communities impacted by Cyclone Gabrielle and the 2023 Auckland Anniversary Floods, with $939.3 million dedicated to road repairs.
- Additional investments of over $68 billion in infrastructure over the next five years and $2.93 billion in operating and capital funding for education, including $1.48 billion for building and upgrading schools.
However, with over 350 school projects under review due to cost escalations, clarity on fund allocation is critical. Master Builders focus over the next 6 months will be advocating for clear allocation plans to ensure project continuity.
In the health sector, $103 million was allocated to help Health NZ manage new capital cost pressures. For housing, the government has allocated $140 million over three years for 1,500 new social housing places, but overall spending on housing and urban development has been reduced, largely from Kāinga Ora's budget. This is line with recent review of Kāinga Ora which raised concerns about its operations, governance, financial viability, and the overall management of social housing in New Zealand.
A key figure that stood out was that Kāinga Ora redevelopment costs were $35,000 per home more than developer-led acquisitions when the cost of land is excluded. The report highlighted that in some cases, Kāinga Ora paid above market value for land, disadvantaging other social housing providers.
It is crucial that we avoid entering a holding pattern where projects are paused, reviewed, or stopped, especially during a downturn. Master Builders will continue to work with the Government to ensure clarity on project changes and advocate for a long-term housing development plan and stable investment pipeline.
Government analysis and guidance
Making sense of government actions can be challenging. Included with this edition is an analysis from Sense Partners, offering a different perspective on whether government initiatives will deliver value for money. They suggest considering strategic fit, efficiency, effectiveness, and ongoing value in addition to cost as things to consider when assessing the merits of an initiative.
Sense Partners’ initial analysis suggests that lifting government procurement would add considerable value. This will not be a surprise to our Commercial Building members. It is a common concern among our members that the public sector lacks quality procurement capability in building and construction, often passing contracts with clauses that disproportionately shift risk to our members.
In response, Master Builders has been working with our commercial members and vertical construction leaders, alongside construction specialist lawyers Hazelton Law, on a Good Contracting project. This initiative includes a set of guidance and contractual templates aimed at improving value for money while ensuring a more productive sector.
The Good Contracting project consists of three main documents: Principles of Good Contracting, Risk and NZS3910 (including companion documents on risk allocation, variations, and extension of time), and a new draft Pre-Construction Services Agreement (also known as Early Contractor Involvement).
We recognize that the most successful projects often begin with early contractor involvement. While many Pre-Construction Services agreements are available, our contractors have raised concerns about the increasing complexity and unfavorable terms. Our goal is to create a standard form agreement that facilitates early involvement without unnecessary complexity, providing all parties with a clear understanding of their responsibilities and risks. We aim to publicly launch these documents on Wednesday 31 July at Parliament. Please do get in touch with me if you would like to attend.
Additionally, we will soon update in partnership with the Specialist Trade Contractors Federation’s Subcontract Agreement (SA2017), which was last revised in 2017, in light of the new NZS3910.
Register now for Constructive 2024
Please mark your calendars for Constructive 2024 on August 14-15, also at the Tākina Convention Centre. Given the Government's focus on Housing Affordability and the imminent release of the Kāinga Ora review, these topics are likely to be central at Constructive, along with discussions on innovative financing models. You will be able to hear from both Minister Chris Bishop, and Minister Chris Penk. More details on speakers will be announced shortly. Find out more and register here.
We are working to enhance the overall Constructive event experience with an engaging program, high-quality event delivery, and smart use of technology. I look forward to building on the success of previous events, which began in 2016.
Thank you for your continued support and engagement.
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