11 Feb 2019

Roading contractors nervous as projects finish: 'All of a sudden we see a dramatic ramp down'

7:33 am on 11 February 2019

The roading sector fears lay-offs and a downturn in major contracts, as big-budget projects inherited from the previous government wind up.

No caption

Photo: 123RF

The industry had a busy schedule under the previous government's tenure, seeing through seven major road building projects under its Roads of National significance (RoNS) programme.

In the lead-up to the 2017 election, National committed to the next round of RoNS - promising an additional $10.5 billion investment in 10 major projects.

But when the Labour-led government was elected they changed tack, re-evaluating plans for expensive expressways, and signalling a shift away from any in the future.

"Until the change of government all the signals were that we were consistently heading down the road programme and if anything that was going to increase," head of Infrastructure New Zealand Stephen Selwood said.

"The change of government has remarkably reversed that trend."

Last year the government set out its direction for transport spending with a focus on safety, access, the environment and value for money.

It meant a change in direction with more investment being made in a larger number of smaller projects, rather than a small number of large projects.

The funding pie for transport increased to $16.9 billion with public transport and road maintenance winning larger pieces while state highway improvements funding dropped by 18 percent.

No caption

Photo: Supplied / NZTA

"That is the government's prerogative but the difficulty is that the public transport projects are not yet consented, funded, or able to proceed," Mr Selwood said.

"That creates an enormous void in the programme of work so companies are now having to review; do they invest in capital? And the answer to that is probably no, at least until we get some certainty."

Projects like the four-lane Transmission Gully motorway project, and the second stage of the Christchurch Southern motorway are due to open to the public in the next few years.

Transmission Gully construction

Transmission Gully in Wellington is one of the few major roading projects still under construction. Photo: RNZ / Rebekah Parsons-King

Mr Selwood said investments in new equipment and systems built up to deliver them would be sunk or lost, and staff would be let go.

"At the moment the investment programme for major roading projects is minimal in New Zealand and that can only be sustained by the industry for a short period. Otherwise, they'll have to be doing staff layoffs to compensate for the lack of work coming through.

"Sydney and New South Wales are currently investing $1 billion a month in transport projects and of course they're major and very attractive projects so that will attract senior project engineers across to Australia."

Civil Contractors New Zealand chief executive Peter Silcock agreed a pipeline of work was essential but lacking.

"There's quite a few of those Roads of National Significance which are due to finish over the next two years and of course the employees are looking around going 'where can I get an equivalent job in the future?'"

He said around $4.8b worth of major road projects were due to finish in the next two years but only around $1.1b worth would be starting.

"That's a significant difference. For our people it's about how do we redeploy some of those people onto other jobs. There'd certainly be thousands of workers less if we're not able to fill this gap in the construction market."

While big jobs like the Central Rail Link, Central Interceptor and the America's Cup base would provide new opportunities not all skills would be transferable.

"Our members are going to have to think outside of the box a little bit about what they can do and how they can utilise that equipment ... rather than doing big, large $100 million-plus jobs they may start doing smaller jobs to keep their staff busy, to keep their equipment turning over and generating payments."

He said chief executives faced some tough decisions over the next 12 to 18 months.

'What's going to replace that lost revenue in the meantime?'

Fulton Hogan is one of the country's largest roading contractors. It increased its workforce and invested to deliver the Roads of National Significance programme alongside the rest of the industry.

"That's the disappointing thing. After many many years the pipeline has grown, the industry has geared up to deliver the pipeline and all of a sudden we see quite a dramatic ramp down," its managing director Cos Bruyn said.

"In the meantime while they figure out where they're going to spend the money and design other work that's going to replace it, or not fully replace it, there's going to be a bit of a hiatus in the programme. And all that means is that we've got to gear down or shift our people somewhere else if we can. If we can't shift our people anywhere else that means we've probably got to make some redundancies."

While new projects were on the cards, he said they would still take time to identify, design, and put out for tender.

"There's going to be a bit of gap between the ramp down and the ramp back up in this replacement work. That's what the industry is worried about. What's going to replace that lost revenue in the meantime?

Without the big jobs, he said those in highly skilled roles would likely look for more rewarding opportunities elsewhere.

"It's not as simple as just taking a project manager and his team from delivering a $300 million job to then delivering a $20m job. You simply don't need that number of staff, you don't need that same level of technical expertise necessarily, and you don't need all that support staff. You just run those smaller jobs with a smaller crew and generally you run those crews of less experienced people because you don't need those heavy hitting project managers necessarily."

He said it was frustrating and created inefficiencies which would be felt all the way across the supply chain. "All the big projects use a lot of subcontractors. There's no real rule of thumb but depending on what type of job it is you'd have to say at least 30 to 40 percent of the job is delivered by subcontractors in a normal situation so the small to medium contractors are also hit as hard as the main contractor, sometimes even harder."

Some in industry starting to adapt

Major engineering and consultancy firm BECA has already started making changes.

"For us at BECA that was a real challenge in that the planning we had done and the resourcing and thinking had been based on previous strategy so it was a test that we could be agile and move," said Group Director of Transport and Infrastructure Damian Pedreschi.

He said it had been critical to understand what the new government's priorities were. "For a period of time it was unclear and it seemed like work was slower to come to market. We're starting to see that improve and we're hopeful and confident it'll continue to improve because it needs to improve."

He said the company's size and the diversity of work made transitioning away from roading easier.

For years BECA had been working on rail projects in cities like Sydney which provided an opportunity to expand those operations in New Zealand in line with the government's public transport priorities.

"It means that talent and resources and expertise that we have across our business can be focused on New Zealand a little bit more and certainly in the space where we have had very large teams on predominantly road projects over a number of years, really having a hard look at how they translate into being able to deliver value in projects that include an element of roads but may include light rail, heavy rail etc."

He said they'd started strengthening teams, hiring some new key staff and looking to re-train existing ones.

"With the amount of work gone in to do that we are looking to government and industry to ensure the projects now come so we can continue to strengthen as the year goes forward."

More work than ever before - Twyford

Transport Minister Phil Twyford said he was well aware of the industry's concerns and the need for a steady pipeline of work.

"There's no question that there's been, after the change of government, a little bit of a hiatus as we developed the Government Policy Statement which sets out the policy direction for our transport system. It's basically like changing gear between one set of projects and another but that process is well underway and these companies are going to be doing more work than they were in the previous three years, not less. It's just a different mix of projects.

He said $3.5 billion of work had been committed to complete state highway projects like Pūhoi to Warkworth, the Waikato Expressways, the Mt Messenger Bypass, the Manawatū Gorge replacement, Transmission Gully, and the Christchurch Southern Motorway.

"We just announced $1.4b of road upgrades and improvements on the State Highway network to prevent deaths and serious injuries. Now that work's already started and is being done by the big contracting firms."

No caption

Transport Minister Phil Twyford Photo: RNZ / Dan Cook

Mr Twyford acknowledged priorities had changed but said the traditional road builders would play their part.

"We understand that the industry wants certainty. They've said to me very clearly they don't care what kind of projects they are; whether they're roads, rail, whether it's new projects or maintenance or repair, they just want the work and I totally understand that."

He said many of the companies who build roads were also bidding for light rail projects which were only a couple of years away. "There are a lot of big projects underway and there'll be more that we'll be announcing in the coming months."

An NZTA spokesperson said the agency had "engaged actively with industry to ensure that they understand and are prepared for" the changes.

"The Transport Agency is actively investigating opportunities to package suitable projects together in order to efficiently deliver the programme to realise the government's transport outcomes. The Safe Networks Programme is one such example."

Get the RNZ app

for ad-free news and current affairs