Christchurch Rebuild: A weather eye on the economy

Aerial view of cranes and the rebuilding of earthquake damage buildings around Cathedral Square. Photo / The Star

As publicly funded work on the Christchurch Rebuild ramps up, Government officials are out to alleviate the risk of a boom-bust market writes Alexander Speirs.

Peter Cunningham is leading an inter-government agency effort to try to avoid some of the inevitable supply pinch points for labour and resources in the Christchurch rebuild.

Cunningham - Director of the Productivity Partnership Programme at the Ministry of Business, Innovation and Employment (MBIE) - is working on solutions to try and make sure costs don't escalate to the point where they threaten the viability of projects and escalate nationwide inflationary pressures which could hammer the NZ economy.

Commercial behaviour in the Christchurch construction market before the Canterbury earthquakes was "below average" compared with the rest of the country, says Cunningham. "You would typically have six to seven organisations on a shortlist and you would select the contractor based on the lowest-conforming cost. This was sometimes sub-optimal for the supplier, but they would still deliver the project without any kind of issues as well.

"That's clearly worked for decades here and it works in a market where you've got typically $300-$400 million of work happening a quarter. What we're looking at entering into know is a phase of unprecedented forecast work in the region.

"We're looking at demand peaking at $2.2 billion a quarter and in the face of that, clearly clients cannot continue behaving in the manner they have done for decades."

MBIE is developing a strategic procurement programme and working with clients to enable them to increase their visibility in relation to what other comparable firms are doing, then looking at ways where they could potentially go to market together to work more efficiently.

Part of that process is sharing information, particularly around what capital works are intended by each of the clients.

The aim is to ensure they have enough information to be able to resource, plan and invest accordingly within their own organisations and supply chains.

"It's all been around enhanced visibility and trying to change the behaviours of the clients and the way that they interact with the market and then how they procure their construction works," says Cunningham. "Here in Christchurch we've seen a very traditional construction market where the focus is on transactions, so things would be done project by project rather than in relationships with organisations."

Organisations going to market together gave the advantage of scale while creating new efficiencies in supply lines.

"We've tried to create an environment where the clients can engage more effectively with their supply chains and get value for money for public sector clients and the taxpayers dollar," says Cunningham. "With that you have to improve capability in both the client organizations and with the suppliers."

"We've got close relationships with a lot of the tier one contractors and they have been receptive to different ways of delivering works and how they might get engaged earlier in the process."

Creating additional value is essential as the construction market moves into a new phase of the rebuild. With the sheer amount of work in large commercial projects on the horizon - particularly from the public sector, - the way contractors and clients interact is set to change.

Warns Cunningham: "At the moment the clients are still calling all the shots and it will flip this year. All of a sudden clients will be in a position where they are going out to market for projects and the number of companies responding for those tenders will start to drop."

The non-residential portion of the rebuild has been progressing at around $500 million per quarter since the start of 2012, with that figure set to rise during 2014 to an average of about $750 million per quarter. By mid-2015, MBIE is predicting a peak of non-residential development at around $1.3 billion per quarter and remain above $1 billion per quarter until mid-way through 2018.

That period will see higher levels of development in the non-residential sector than at any single period for the residential sector, primarily as the government is the client responsible for the majority of work during this time.

Going up

The non-residential portion of the Christchurch Rebuild has been progressing at around $500 million per quarter since the start of 2012. That figure is set to rise during 2014 to an average of about $750 million per quarter. By mid-2015, MBIE is predicting a peak of non-residential development at around $1.3 billion per quarter which will remain above $1 billion until mid-way through 2018.