17 Aug 2018

Forcing builders into risky contracts: 'How crazy is that?'

1:19 pm on 17 August 2018

The government is ordering all of its ministries and agencies to stop adopting tactics that force builders into risky contracts.

Phil Twyford

Phil Twyford Photo: RNZ / Richard Tindiller

Minister of Housing and Urban Development Phil Twyford told a Master Builders conference yesterday he was "shocked" to learn hardly any departments were following the government's own rules about fair contracts.

He said the Ministry of Business, Innovation and Employment had a set of decent and good practice procurement guidelines, but departments were not using them.

"Well how crazy is that? So minister Salesa has basically has gone to Cabinet and said we've got to make it mandatory, it's nonsense," he said.

Building and construction minister Jenny Salesa will be extending the guidelines to cover all agencies and issuing a directive that they abide by them.

The move follows the failure of a number of construction firms this year, most recently Ebert went into receivership with estimations it could own as much as $40 million.

Contractors said they were exposed to government agencies trying to build on the cheap or asking them to quote on projects that had not been fully designed.

Increasingly, jobs have become "design and build" according to industry players, meaning the client gives specifications and a construction company works out how it would design and build it at a fixed price.

These projects carry a higher risk and the government is one of the main culprits for doing it.

A survey of industry leaders released at the same time as the construction conference showed more than half thought the sector was performing poorly or terribly and that there was uncertainty.

Prime Minister Jacinda Ardern said the government was doing everything it could to ensure confidence in the construction industry.

"I think that they can have that certainty when it comes to things like our house building programme, transport, infrastructure we already are getting underway, and so just by default that certainty exists there for those projects."

Ms Ardern agreed the industry needed to know that the government was putting up the investment required for long-term projects, and that there was certainty around that investment.

Anthony Leighs of Leighs Construction in Christchurch told Morning Report New Zealand buildings haven't been well built and aren't efficient.

"What the construction industry's been saying to government, for a very long time, is to get really good outcomes - to get well built, efficient buildings that are going to perform well in the longer term - you need to procure on a basis which is equitable and will provide good outcomes both for the client and the building that they get," he said.

He said talking about risk openly and in a mature way is key to procurement moving forward.

"When you look back over the decade, there's been a lot of contracting work where builders have taken a little bit of a 'she'll be right' sort of approach and I think that has changed and the discussions that are happening at the moment... is that builders have far greater appreciation of the risk they've been asked to take on and they are pushing back and they are saying no."

The Registered Master Builders chief executive David Kelly said that while it was a good step to make the guidelines mandatory, political will was needed to enforce it.

"Otherwise, I know having worked in government departments, if it's just a tick box that's easy and a number of them would say, 'We do follow the guidelines.' Well, from the industry side, it sure as hell doesn't feel like it."

Specialist Trade Contractors Federation president Graham Burke said he saw special conditions added to contracts.

One that worried him was the continuity clause which meant if a main contractor failed, the sub-contractors were obliged to continue to work for the client.

"It's very scary for subcontractors and many won't sign it."

Mr Burke said these types of clauses were about looking after the risk of the client but constructors also needed protection.

Mr Kelly said building clients needed to recognise that going for the cheapest price meant the poorest results, and the lifetime cost of the building was more important than the initial capital cost.

Mr Twyford agreed that there had to be a better way.

"We recognise that it's a false economy to drive a very tough, least-cost procurement approach and then find that there's hardly anyone left in the industry putting in for jobs. I mean it doesn't make any sense at all."

The government will be making an announcement over the next few days about improving the way it procures goods and services across the economy, particularly in infrastructure and construction.