Christchurch Rebuild: Time for new supply lines

Destruction in Manchester Street in Christchurch's CBD after the second big earthquake. Photo / Brett Phibbs

MBIE partnership and procurement director Peter Cunningham says there is a real opportunity to test the international supply chain market as the Christchurch rebuilds ramps up.

"When we do find ourselves in a situation where demand outstrips supply, to control costs we'll either have to slow things down or create opportunities for international players to come into the market," he says.

Cunningham stresses that alliancing has been done in the horizontal space depending on the size and scale of the project and the risk involved for probably the last decade. "But it's never been done in the vertical space and we're looking at how we might create those opportunities and supply chain alliances."

At the moment there is an unconstrained approach to the Christchurch Rebuild, with everyone working independently of each other. But with major organisations all looking to go to market during the same time period, they are effectively competing for the same resources. With as much as $4.1 billion of work to commence by this time next year, tendering costs alone could be as high as $50 million.

MBIE is taking a lead role in creating what Cunningham terms a "production line mentality" to a programme of work. "We've been looking at clients that have got similar types of construction where we can put those clients together."

Among them are organisations like the Christchurch City Council, Ministry of Education, University of Canterbury, Housing New Zealand and the District Health Board. "You've got a good mix of organisations with similar construction types, if you could get those organisations working together then we could go to market in a completely different way with that group of projects."

"That's a significant amount of money over a 10-year period, so you're able then to go into the market place and look to put this together as an alliance approach and look at four or five organisations, similar to SCIRT."

MBIE has created a framework agreement from organisations that have collaborated successfully, which can then be implemented in the future. One of the first agreements was between the Ministry of Education and the University of Canterbury.

"What we found with them was that they were both pretty much at the same stage, they both knew they would be competing for the same resources and saw an opportunity to go to market together for consultants and professional services".

Another four or five organisations that had hoped to come on board weren't at the same state of readiness. A common use clause built into the documentation means that if other clients want to use what the University of Canterbury and Ministry of Education are setting up, they have that ability. "At the moment the clients all acknowledge we're at risk of either not getting our programme delivered or being subject to significant cost escalation in the market. What we're trying to do is find ways to alleviate that or enable them to look at more innovative forms of procurement or delivering projects."

"Once the local market has been exhausted we will look for an increase in capacity potentially from the international market."

Some local companies have organised joint ventures with international partners, something that MBIE has been keeping tabs on. They've been looking to see how the partnerships are operating, whether it's an international partner bringing their supply chains into the local market or a local company using an international partner to boost their balance sheet credibility and bid into larger projects.

"What we've found is that there's a mixed approach happening. Some of these international companies are coming into the market saying that they'll use local labour, which is actually just going to compound the issue for us because it's not solving anything and brings another tier one contractor into the market that's going to plough into the same resource base."

"Others have been much more proactive in this space, bringing their supply chains over with them. Of course you have to pay a premium for that so it's a case of being realistic about how we approach this and the outcomes which we are trying to achieve."