15 February 2019
There’s no doubt the construction sector has been experiencing sustained growth for a while now. Statistics New Zealand shows the value of residential building work for the September 2018 quarter was $3.8 billion, up 5.1% from the September 2017 quarter. Even more impressive, the value of non-residential work rose 7.9% for the same period to $2.1 billion.
These levels of private and public construction work should provide a degree of medium to long term certainty for the wider sector. It should also provide exciting opportunities for business and staff development and innovation.
Yet the consensus from the recent Society of Construction Law (SCL) seminars held around the country, which I was asked to chair, suggests the commercial sector is at a crossroads. Participants; including developers, building owners, construction companies and the lawyers representing them spoke of a sector with a breakdown of trust between parties.
I don’t want to be the harbinger of doom and gloom, but there was a sense of feeling trapped in the current system, with all parties feeling powerless to make any real change. More worrying for me, were the informal chats I had with participants about not finding the commercial sector fun or satisfying to work in anymore. These chats told me a recurring theme; frustrations and stresses were driving people away from the sector at the very time we need more people to participate.
These sorts of discussions can be the catalyst for change. We all need to step up and play our part. Systemic change won’t be easy, but I think over the long term we can achieve positive outcomes that provide beneficial outcomes for the commercial sector. As a starter for 10, my key areas of focus are:
The current system can set us up to fail from the start, by putting all parties in an adversarial environment with each other, rather than working as true partners. We need to focus on the same objective – quality buildings, delivered on time for a fair price, with fair margins. Projects should be contributing to strengthening the sector and supporting innovation and growth. The system’s current adversarial environment isn’t allowing us to share this focus. Focusing on a common objective will allow us to rebuild trust.
Setting clear principles
All parties need to change - clients, contractors, sub-contractors, developers, and lawyers. All parties also need to take leadership and set clear principles for their role in transforming the sector.
The Vertical Construction Leaders Group is already making significant strides in this, with the development of a draft strategy for commercial contractors. We have already developed the Lead Contractor guidelines, and we are now establishing a set of principles, outlining how to manage risk, and how to build capability in key areas such as project management.
Risk management is fundamental in our industry and it needs to be transparent and fair. There must be a standardisation of risk schedules that focuses on the long-term value of the project, not just the short-term transaction. We are urging other industry groups to champion their own principles for their respective areas. This will establish clear expectations across the sector.
Building capabilities together
Parties need to work together to build capabilities in the sector. The construction process is much more complex than it used to be, and quality project management has become an even more essential role. Equally, fostering quality management within construction businesses is essential in a competitive and increasingly complex environment. We need to grow our talent pool and share our knowledge with others. This will require working together to discuss training, to share insights and attract new people into the commercial sector.
Standard conditions of contract
Contract provisions and special conditions are one of the many drivers reinforcing current behaviour in the industry. We believe there is a need to revisit 3910 to ensure all contracts have standard conditions and risk is fairly and transparently allocated. We launched our Lead Contractor Guidelines, at last year’s Constructive Forum, to help ensure contractors understand the risk they are taking on when they sign contracts.
Quality marks and accreditation
I believe the sector should focus on an accreditation scheme whereby construction companies must meet a minimum standard before considering pricing. This would include a weighted assessment of balance sheets, history, governance, and capabilities. These are areas where Government procurement could lead. Ultimately this could also help to incentivise companies to invest in innovation and training as well.
Stopping the brain drain
There are too many stories of people walking away from the sector because they are not finding the current environment enjoyable or satisfying to work in. For the long-term health of the sector we need to be ensuring these people stay, gain experience, and become future leaders. A continued brain drain will undermine the capability, capacity, and effectiveness of the commercial sector.
There’s a lot of short, medium, and long term work to do, but I am confident. We need to be working together not to just improve the health of our sector, but to deliver better homes, better workplaces, and ultimately better lives for all New Zealanders.