2 Sep 2020

Report into NZTA contracts causes construction industry ructions

2:13 pm on 2 September 2020

A scathing report into Transport Agency (NZTA) contracts is causing ructions among construction industry leaders.

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The industry's major training group, Site Safe, has quit the board of the industry's leading safety organisation over the report's allegations.

Major builders have debated pulling out of it too, only to be told by a key player that the report is "rubbish".

The independent review ordered by NZTA found the agency paid out twice as much as it should have - or almost $400,000 in total - under a series of contracts between 2014-16 with four companies run by the friend of a senior agency manager, at times in breach of conflict of interest rules.

Read the full Deloitte Zero Harm Report (PDF 6.8mb)

It drills down into the origins of a scheme, Constructsafe, which is like a drivers' licensing system for builders and tests construction workers' competency around health and safety rules.

It has been pushed by the industry since 2011, born within NZTA around 2014, and is now run by the major safety group Construction Health and Safety NZ (CHASNZ).

Site Safe chief executive Brett Murray read the Deloitte report two weeks ago - and has responded by quitting CHASNZ's board.

"The report lays out some pretty serious allegations around tendering, around contracting, around material benefits," Murray told RNZ.

"My personal view, and the view of my [Site Safe] board, was that we were sufficiently concerned that I should resign my position."

The CHASNZ board did not want to take any action over it and while there were errors in the report they were not material, he said.

'Fundamentally flawed'

CHASNZ has rejected the report outright, calling it "fundamentally flawed".

"No information in relation to NZTA's investigation gives CHASNZ any cause for concern in relation to the ConstructSafe scheme," its chief executive Chris Alderson said in a statement, adding the scheme has been assessed as "world-class".

"It is unfortunate that through the Deloitte and NZTA investigation a due process was not followed", he said, noting CHASNZ was never interviewed and did not know of the report's existence till a few weeks ago.

The report by audit firm Deloitte was finished over a year ago, but its release was delayed after NZTA referred it to the Serious Fraud Office (SFO). It was leaked to Newsroom a fortnight ago, and released to RNZ - which first requested it in mid-2019 - last Friday.

The SFO was still investigating, NZTA said yesterday.

The report faults a leading NZTA manager from 2014 until he resigned in early 2019, Martin McMullan, for buying services and approving payments to companies that belonged to his friend, Martin Riding. RNZ has reported extensively on this.

Some contracts were missing or not signed off on, or much more was invoiced for than in the contract, it said.

McMullan was key to NZTA making the Constructsafe scheme compulsory on state highway projects, which resulted in Riding's company Constructsafe Testing receiving more than $1.5m in revenue, the report claims.

More than 75,000 people have sat the Constructsafe test using the app, at $60 per person, split between CHASNZ and Riding's company.

McMullan rejected the findings, saying in a statement to RNZ he did not begin Constructsafe and was not key to mandating its use, and referring to a 2018 investigation that largely cleared him around how contracts were awarded to Riding's companies.

Riding did not respond yesterday to an RNZ approach.

Builder wants out

The report has also spurred a major builder, Phil Brosnan of Brosnan Construction, to call for the commercial construction industry's representative to quit the CHASNZ board in an internal email obtained by RNZ.

The industry "should distance itself from CHASNZ without delay, including removing our representative from the board and asking Site Safe to do the same" to avoid being "dragged into" issues in the Deloitte report, Brosnan wrote last month to other members of the Vertical Construction Leadership Group (referring to commercial construction of large buildings, as opposed to "civil industry" construction of roads and pipes).

Brosnan, when approached by RNZ, took a somewhat softer line:

"The understanding that there is a Deloitte report out there that questions the legitimacy of Constructsafe is a concern, and we'd need to be concerned about our relationship with that," he said.

The Deloitte findings merely reinforced his and others' existing concerns that CHASNZ and Constructsafe were not a good fit for the commercial sub-sector, Brosnan said.

He has been asked to set up a working group to give feedback to CHASNZ.

However, another major commercial builder - Rick Herd of Naylor Love, who is the Vertical Group's representative on the CHASNZ board - in an email responded to Brosnan by describing the Deloitte report as "erroneous" and "rubbish".

CHASNZ and Site Safe had "mutual goodwill" and knew they needed one another, Herd said - before he knew Brett Murray had quit the board.

The Deloitte report said NZTA had paid for products that were "not fit for purpose", while varying the usual contractual clauses to give Martin Riding's company freedom to commercialise the IT built under contract to the agency.

It found the code and images within an agency app called Zero Harm were very similar to what was in the Constructsafe app.

However, CHASNZ said the intellectual property (IP) clause change did not relate to ConstructSafe and, at any rate, "in software as a service contracts it is normal that IP remains with the vendor".

The Deloitte report details how NZTA manager Jon Harper-Slade, who varied the IP clause for Martin Riding, went on to be recruited as general manager for the newly established CHASNZ in 2018.

Martin McMullan was on the interview panel, as he was an advisory member of the board of the Construction Safety Council (CHASNZ's predecessor).

"I had no ability to recruit anyone and this was done via a specialist recruiter on behalf of the Construction Safety Council," McMullan told RNZ.

Harper-Slade referred RNZ's questions to Alderson, who said Harper-Slade "was appointed to the CHASNZ role through an independent recruitment process, not through a recruitment led by Martin McMullan."

Martin Riding's company Constructsafe Testing still provides IT, administration and auditing services for the scheme to CHASNZ.

"The competency system is an arm's-length commercial contract with a supplier that provides a cost-effective solution to an industry-wide problem," Alderson said.

Peter Silcock of the Civil Contractors industry group said Deloitte did not do enough to understand why the industry wanted the Constructsafe scheme to be set up.

"We're obviously concerned about reports that the processes and procurement and payments might not have been made according to the rules and requirements within NZTA," Silcock said.

"But obviously at the time, we were quite pleased that NZTA came to support the construction industry and the development of our competency assessment - it's a big step forward for the industry."

The Deloitte report read as if NZTA was alone in pushing to make Constructsafe mandatory on state highway projects.

"Some of our key members were consulted about that and we were quite supportive of that."

Constructsafe was "certainly fit for purpose and it's continuing to be used across the industry," Silcock said.

NZTA removed the mandate for contractors to use ConstructSafe last year but "we will continue to work with CHASNZ to lift safety practice on state highway work sites," it said.

Auckland Council mandated the use of ConstructSafe for many contractors last year.

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