Review identifies positive infrastructure delivery changes

A report published this week by the Infrastructure Transaction Unit, within Treasury, examined issues associated with the use of New Zealand Standard Conditions of Contract for Building and Civil Engineering, in public sector-initiated construction projects.

The review identified seven key challenges, together with opportunities for improvement and forms part of the government’s commitment to the Construction Sector Accord. It is intended to assist the government in their role of lifting our nation’s performance in procuring and delivering major infrastructure projects.

Paul Evans, Chief Executive of the Association of Consulting Engineers (ACENZ), says “The construction sector contributes some seven per cent of our GDP and employs ten per cent of our workforce. Given those figures, it is vital to New Zealand’s economic and social wellbeing that the sector thrives and has long-term sustainability. The government has a key role to play in this as they are a major client, spending around $10 billion a year on the procurement of infrastructure.”

The key challenges identified in this report include:

• Mistrust between the public sector and industry is contributing to poor outcomes,
• Construction is not the core business of most public sector agencies, and there is a skills gap at all levels,
• There are perceptions that the public sector does not understand the difference between the lowest price and value for money,
• Special contract conditions are unfair, not well understood, and give a false sense of security,
• The use of time bars is unacceptable, and contractors are not being paid for variations,
• There are no caps on contractors’ liability,
• The Engineer to the Contract must be impartial
• Risk transfer is unsustainable and aggressive.

The Government and industry signed the Construction Sector Accord in April 2019, acknowledging the challenges facing the sector and signalling a shared commitment to transformation. The Accord included a commitment to a more visible pipeline of work and procurement practices that are fair, efficient and predictable.

Paul Evans says “Giving effect to the Construction Sector Accord is central to a thriving sector and in turn, a flourishing Aotearoa. It is fantastic to see the Treasury taking an open and honest look at the issues around procurement. These are not new issues. They’ve been around a long time, but this assessment and acknowledgement is a significant first step and demonstrates the government’s commitment to the Accord.

“Building strong, positive and collaborative relationships between the industry and government, is crucial if we are going to achieve our nation’s aspirations around economic and social wellbeing. The procurement process sets the basis for these relationships, so taking sustainable action here has the potential to make a fundamental difference.”

“There have been genuine concerns from the sector around unreasonable conditions of contract, the inappropriate transfer of risk, and a focus on the lowest cost procurement. Together these factors have driven poor outcomes for the government and the taxpayer,” Paul Evans says.

“Moving towards a value-orientated, fair and relationship-based approach to procurement has the potential to transform the sector and what we are delivering for all kiwis. I congratulate the government on this important first step, and we look forward to working with them to make a step-change in infrastructure delivery in Aotearoa.”

Read the report - New Zealand Standard Conditions of Contract for Building and Civil Engineering

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