Still waiting for the vertical rebuild

Peter Mathewson, Opus New Zealand managing director.

Opus New Zealand managing director Peter Mathewson says the nation's infrastructure market is suppressed at present as construction and consulting companies wait for the Christchurch rebuild to start in earnest.

"There's less work across the country than there was two years ago. The major consulting and construction forms have built up resources on the promise there would be a substantial amount of work coming from that city".

They are still waiting, although progress has been made on the city's horizontal rebuild - that's road building and installing utility services. Mathewson says: "There's been good traction there.

"However when it comes to the vertical rebuild, buildings and the associated infrastructure, work has been delayed for a number of reasons.

Mathewson fingers the unresolved insurance issues, problems with getting consents and organisational issues with both local authorities and government agencies still finding their feet in terms of who is doing what.

Away from Christchurch he says work in the rest of the country is flat, with little new infrastructure being built and architectural companies struggling to find work.

Mathewson says: "Provincial New Zealand is doing it pretty tough. There's not much private investment out there at the moment."

Though things are not much better in regional cities, Mathewson says the main centres are more promising with large transport projects earmarked for Auckland and Wellington. In Auckland the announced rail extension and a second harbour crossing as well as series of smaller projects will come to the marketplace in the near future.

"There's still a reasonable amount of activity in Wellington and, of course, Christchurch will start before much longer. Hamilton, on the other hand, remains flat.

Much of the flatness is down to conservative spending by local authorities as at the moment they are under the thumb in terms of keeping spending down.

"Government has put some real pressure on local authorities to minimise rates spend. There's fresh legislation coming to Parliament and the local authorities are looking at the implications for their spending. And local body elections are coming up this year, so there's been some spending constraint around that too," Mathewson says.

This means spare capacity is high and prices are low.

He says: "If you are an asset owner and you're contemplating building, there's no better time to start a project than now".

There's a concern that local authority long-term development plans are now falling well behind. This is a problem for the consulting and construction industry because the ebb and flow of work makes it difficult to maintain the resources necessary to get things moving again later.

Mathewson says when capital expenditure is tight and there's a general lack of new investment, asset owners need to turn their focus more to operating costs and extracting the maximum value from existing assets. From a capital expenditure point of view, asset owners will generally choose the lowest immediate costs and not look at the whole of life when constructing new assets.

He says many government departments are restricted in terms of annual budgets or through their funding cycles. So they optimise spending over the short term and disregard on-going costs. He says public-private partnerships (PPPs) are good way to focus more on operational costs.

Asset owners aren't always fully aware of the total value of their assets, so the first step is to create a full inventory, looking at the cost taken to maintain an asset and then at the rate of deterioration and how much it will cost to maintain in future. There's also a need to assess when things will need replacing. Mathewson says Government previously embarked on an asset-management programme, but not much has been said about this in recent years.