'Perfect storm' dogging construction sector

Every year, we trawl through the archives and republish a few of the standout business stories from the last year. This is essentially a mix of the most popular, topical or insightful pieces published in 2018. Here's one that made the cut. This piece was first published on August 1.

New Zealand's construction sector, estimated to be facing a $200 billion workload in the next five years, is suffering from a "perfect storm" and dogged by a string of serious issues, says an industry chief.

Reacting to Ebert Construction's receivership, Property Council chief executive Connal Townsend. said: "This is not Armageddon, but deep problems creating a perfect storm."

Connal Townsend has concerns about the construction sector. Photo/Jason Oxenham

Townsend has just returned from examining property industries in the United States and Europe and called for fundamental changes to the sector, one of this country's largest employers.

"Look at Ebert and Fletcher [Building]: they tender and hope they get away with it. They try to screw the price down to win the work, put in a bid and then just hope they will get away without any escalations in costs and materials and labour.

"We need a fundamental change in New Zealand. The head contractor is hit by price rises and they pass it down the chain. It's a problem with the allocation of risk and, quite frankly, it all comes back to that," Townsend said.

PwC said today it was the receiver for Ebert, a building business with many sites around New Zealand including the 153-unit Union Green on Union St near the Southern Motorway onramp from the CBD.

Townsend said Registered Master Builders, the Property Council and the Building Research Association were working jointly on an industry transformation initiative. The project had been running a year and sought major changes, he said.

"We have drilled down very deeply and we think we've identified a bunch of hard-core problems. There are fundamental problems with the Building Act and we have long-standing problems around lack of skills," Townsend said.

Bruce Kohn, chief executive of the Building Industry Federation with about 140 sector members, said Ebert's receivership was evidence of challenges facing the sector and he would not dismiss the likelihood of further failures.

"I wouldn't rule it out. We need a culture change to ensure that we have successful completion of projects. Ebert is symptomatic of the pressures that are coming to bear on the commercial construction industry as a whole," Kohn said.

David Kelly of Registered Master Builders said the sector was looking forward to $200b worth of work in the next five years which should be a good thing. But the sector was "at a crossroad" . Booms often caused issues, Kelly said.

Lara Maree Bennett, John Howard Ross Fisk and Richard Michael Longman of PwC
were appointed Ebert's joint and several receivers on Tuesday. They now have control of all Ebert's sites and assets.

Ebert was building Union Green apartments, a new mental health unit at Middlemore Hospital in Auckland, the Indian High Commission in Wellington and was almost finished at the Library Lane apartments project in Albany.

Ebert said it was working on the Synlait White project at Canterbury's Dunsandel, a new Synlait milk powder plant at Pokeno south of Auckland and the new Remutaka fire station at Upper Hutt.

CONSTRUCTION SECTOR WOES
• Fletcher Construction withdrew from high-rise after nearly $1b losses over two years on big jobs;
• The Orange and H ex-Hawkins businesses owe $41m to about 1000 subcontractors, according to liquidators BDO;
• Canam Construction claimed last month Alexandra Park owed it money. It has been replaced on one apartment tower by CMP Construction;
• Corbel Construction terminating its Parnell Terraces contract claiming months of payment claims being under-valued, replaced by RCC Remediate.
• Ebert Construction's receivership, PwC appointed on Tuesday, 15 building sites locked down and contractors locked out.