Here comes a huge burst of activity, maybe. Big infrastructure spending stands to do great things for our economy and great things for our construction sector. But we have to move quickly.
Few of the projects published by the Infrastructure Industry Reference Group in August 2020 are truly "shovel-ready". Many still don't have fully confirmed funding, consents, or a sufficiently developed design. That puts them many months away from breaking ground.
The Covid-related disruption and delays of this year are also throwing timetables out. According to the BDO 2020 Construction Survey Report, 69 per cent of survey responses had contracts cancelled or delayed due to Covid-19. Current projects may come to an end before new ones are ready to start. Time lags and disruptions create gaps in the pipeline of work and that makes it harder for contractors to keep people in work. With Australia reopening we would not be surprised to see more workers crossing the Ditch for job security, aggravating an already acute resource problem.
So the pressure is on to move these projects along more quickly. How?
There's no question that procurement processes can be sped up. They can be very protracted.
One clear option is to set aside the requirement of Government procurement rules that all contract opportunities have to be openly advertised. It's permissible, in qualifying emergency circumstances, to do that. We would suggest this is one such occasion and would avoid duplication of resources with having multiple teams tendering the same project.
Of course tenderers still need to be confident of a fair process so another option is to use Alliance models, in which the various parties, who would in usual circumstances contract to one another, come together as one team. Done well, it can ensure a faster execution — you can mobilise quickly and run in parallel with the initial design and consenting.
Katrina Van Houtte, Partner at Kensington Swan.
Essentially the risks are managed through high transparency, with everything done on an open book and no-sue basis. The various parties have the confidence to work together and innovate. Likewise, Early Contractor Involvement enables contractors to be engaged sooner on non-price attributes with pricing work happening in parallel with design work. The procurement process can also be streamlined by not reinventing the wheel. Bundling similar projects into a "framework agreement", whereby the initial project serves as a precedent for further similar contracts makes it possible for qualifying contractors to line up multiple jobs, and set up a pipeline of work. The more secure the pipeline, the more ready they will be to retain and invest in their staff.
More broadly, we see this burst of activity, as a golden opportunity to reassess wider considerations.
In particular, it would be good to see more action on the concerns identified by Treasury in its August 2019 report into the issues associated with the NZS Conditions of Contract. There's good progress being made, but there's still work to be done to avoid unfair transfer of risk to contractors.
We've seen, through the Covid-19 experience, that a consistent and fair approach from Government to addressing matters concerning risk allocation results in better outcomes and fewer disputes. Through the Construction Sector Accord, MBIE acted quickly to issue industry guidance on the treatment of variation claims for lockdown costs under Government contracts. We believe this averted an avalanche of disputes. The vast majority of these claims have now been settled amicably and collaboratively between the parties. Outcomes of that kind build trust and lead to better project outcomes overall.
What are the prospects for PPP contracts? Given the difficulties that have been encountered with Covid-19 and the inquiry into the Transmission Gully project, we do not see this Administration having much enthusiasm for new PPPs. But private funding and financing of infrastructure, done well, can help. Developing new refined models with a more balanced risk allocation will need to be considered.
We see the appointment of Grant Robertson to the Infrastructure portfolio as a recognition of its vital importance which should boost momentum for the sector. What is less clear is how Infrastructure overlaps with the other portfolios — Michael Wood (Transport), Megan Woods (Housing), Poto Williams (Building and Construction). Looking out past the shovel-ready projects, where should infrastructure activity be focused?
Katrina Van Houtte.
In terms of resilience, the management of congestion and public transport planning, should Auckland harbour crossings move up in priority? Recent problem leading to the closure of lanes and, for a time, the whole bridge, showed up the need to address the vulnerability of this critical piece of infrastructure for Auckland, and brought into urgent focus the question of a second crossing and its relative priority to other projects.
And what now for light rail? Where might it now sit in relation to other infrastructure projects, given a change of Minister and the exit of New Zealand First, who opposed it? And who will now deliver it?
Perhaps what will matter most is that our approach is not so much Think Big, as Think Better.
- Paul Buetow and Katrina Van Houtte are partners the Construction and Major Projects team at Dentons Kensington Swan.
