Construction Thought Leadership Seminar Series
Our construction panel on 4 April, chaired by Senior Associate Scott Thompson, addressed a range of challenges that our construction industry is facing, particularly in relation to our risk allocation and procurement practices.
Some positive experiences were shared by Senior Associate Travis Tomlinson regarding certain steps key industry players have been taking in response to these challenges, as well as some revealing truths by Stephen Gracey of RLB. Interesting insights from the Ministry of Business, Innovation and Employment (MBIE)’s John Ivil and Anna Butler were also provided around upcoming regulatory and legislative reforms to address these challenges.
Key points from the seminar include:
- New Zealand’s construction industry has a very low barrier to entry. The ‘lowest price mentality’ within the industry is causing a race to the bottom and this has resulted in some spectacular failures.
- The industry remains highly fragmented and divided with parties being driven by personal financial incentives, rather than a commitment to whole of life benefits and better industry outcomes.
- Our construction boom has resulted in high demand for capable people and other resources. However, this demand has not been able to be satisfied and this has led to a dilution of skill and leadership.
- There has been a lack of leadership and understanding around risk and its implications. Some Principals and/or their financiers have sought to transfer too much risk to other project parties and some of those parties, particularly Contractors, have agreed to take on levels of risk that they have not been able to manage.
- Risk allocation is often only ever a temporary measure – projects are prone to failure due to risk being borne by parties not well-placed to manage them.
However, despite clear challenges that our industry is facing, a number of positive changes being implemented by the industry were highlighted by the panellists, including:
- The Government is on the cusp of implementing and enacting important changes to the regulatory and legislative environment to promote and drive better industry behaviours and procurement outcomes – such as through MBIE’s fourth edition of the Procurement Rules, where “broader procurement outcomes” in relation to matters such as the environmental, social, economic and cultural settings are to form part of and inform procurement decision-making in the public sector.
- A number of Principals/developers in the private sector are becoming more attentive to the journey of contract preparation and risk allocation – they are positively engaging with their lawyers and other advisors to better consider where risk should best sit and to then allocate risk in a ‘best for project’ way.
- In turn, Contractors are becoming more risk aware. Contractors are investing in organisational risk awareness through their governance processes, focussed training and investment in their people, and better engagement with their advisors.
- There is positive engagement with the insurance market through the use of insurance tools around risk, including tailored and bespoke insurance policies that benefit the entire project team.
- Early contractor involvement and other collaborative contracting models continue to produce positive project outcomes in the current climate. There are a large number of success stories on the back of collaborative contracting processes and models such as ‘ECI’.
- In the main, there are signs of people looking for a healthy, robust and reliable construction sector for the benefit of all and the future of New Zealand in terms of the built environment. However, there is still a lot of work to do in this area – this week, the Construction Sector Accord (a joint-public and private sector initiative) is due to be launched and this Accord has the potential to transform the industry through the implementation of shared goals and principles for the benefit of all.
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