The construction industry: After an extraordinary year, where are we now?
It has been more than 12 months since our last thought leadership event in 2019, when the industry was facing a significant pipeline of work across both public and private sectors and serious skills and capacity constraints. Back then, topics of interest included new procurement rules, risk allocation, the role of the Engineer, and the success or otherwise of the adjudication regime under the Construction Contracts Act 2002. But after an extraordinary year, where are we now as an industry? With the best will in the world, we could not have predicted the challenges the construction industry would face in 2020.
In our Construction Review 2020 we reflect on these challenges and look ahead to what the future holds for 2021 and beyond.
What did we expect in the face of the unexpected?
Like many, we went into the first lockdown without any clear idea about what COVID-19 and a lockdown would mean in the immediate and longer term for the construction industry, our clients, our firm, and our team.
We could see industry bodies quickly taking the lead on key issues arising under construction contracts (as is covered later in this publication) and a real push for relational and solutions focused approaches. We saw industry bodies motivated to address issues arising in the face of the pandemic, including the remobilisation of construction sites and associated health and safety measures.
The work of the Construction Sector Accord Group certainly highlighted the importance of the construction sector to both Government and the wider public. There was also a major shift, moving from an Accord that last year was looking for additional resourcing and talking to Government about the phasing of work to mitigate a boom, to now looking for help from Government to mitigate the bust.
As we become accustomed to pandemic life (and we say this deliberately because it would be foolish to suggest we are out the other side of COVID-19) and infrastructure and construction work continues, what does the pipeline look like?
The Government’s budget promised major investment in infrastructure and housing with around $18 billion committed in its New Zealand upgrade plan, COVID-19 Response and Recovery Plan and through its Provincial Growth Fund. The residential and retirement sectors are also optimistic but battle the willingness of funders to back new developments, while commercial construction projects face very real challenges.
We are currently working with representatives from a key sector group with a pipeline of billions of dollars of work, preparing a suite of documents for their future projects. The group and the suite acknowledge that there is more than just a contract document required for a successful project. The group references and supports, a range of prerequisites (including a requirement for complete design documents for pricing, to the governance and management structures for the project for both Principal and Contractor, and an independent administrator for the contract). We look forward to its use on the first projects next year.
As we look to the future for the construction sector, culture and people remain at the core of successful projects. He tāngata, he tāngata, he tāngata (it is the people, it is the people, it is the people) has never been more relevant as our principal side clients look to key individuals to lead their projects.
There is a shift towards using relational approaches over the commercial arrangements to support project delivery – with both parties promoting best practice, solutions-finding (rather than problems-finding), and seeking ‘best for project’ outcomes. While aspirational, it is a worthy goal in these increasing dispute-ridden times.
Turning to disputes, this is certainly a growth area in the sector. No doubt arising from some of the commercial stresses encountered in the project. Many have their genesis at the beginning of the project with misaligned understandings, intentional or inadvertent mis-pricing, and/or optimistic time scheduling. Others arise through personal circumstances, and asymmetric views.
The amounts involved in larger projects, or relative to the financial position of a party, almost necessitate formal dispute processes where an outcome can’t be negotiated between the parties, or as part of the journey towards such an outcome. Increasingly adjudication (under the Construction Contract Act) is being used in support of an initial cashflow outcome.
A dispute focus can be debilitating for the progress of projects, taking much needed management resource and focus away from project delivery. For this reason, we are now working with our clients on strategies to keep disputes distanced (but running concurrently) from the project delivery team. Sensible dispute strategies can provide meaningful outcomes depending on context, and it is important that project and dispute teams are aligned on this front.
We explore many of these issues in this publication, our Construction Review 2020.