Fletcher chief executive Ross Taylor. Photo / File
Fletcher chief executive Ross Taylor. Photo / File
COMMENT:
Pitches about "collaborative partnerships" where companies pat themselves on the back over "outcomes for stakeholders" typically make me groan and quickly archive the offending email.
However, in the case of Fletcher Building's alliance with Auckland International Airport, Hawkins and designers Mott MacDonald, the PR guff might actually be justified.
Construction alliances have been around for yonks - just ask NZ Transport Agency or Watercare - but last month's announcement was significant because the project isn't roads or pipes, but a large-scale vertical development.
The $1 billion-plus project is the Domestic Jet Hub, a new terminal including retail and food and beverage space. The airport said in February the alliance will have a 150-strong project team and 1,600 subbies at its peak.
"For a build as complex as the Domestic Jet Hub, we need to tackle the project differently, shifting away from traditional procurement practices to a delivery model based on shared responsibility and collaboration, in line with the new Construction Industry Accord.
"The alliance will also provide the capacity we need in a constrained construction market to successfully deliver such a large-scale development," said airport chief executive Adrian Littlewood when he advanced the project in February.
The alliance hasn't given more details about how it's structured - and the airport was pretty busy last week when BusinessDesk called - but such alliances don't fix a price. Instead, they use a model that means if costs inflate for the contractor, they rise for the client too.
The aim is to share in the pain and gain of the contract, and to avoid disputes. Most don't include liquidated damages clauses, where head contractors can charge a specified amount for late work.
This means contractors and clients share offices, as they are supposed to work on projects together and perceive themselves as one unit - not as Fletcher or Hawkins workers, but workers of the alliance. It's warm and fuzzy but relationships are critical to these deals.
Given Fletcher's two-year horror show was largely to do with projects inside its construction problem child, moves in the unit are being closely watched.
Shareholders still see the hangover as SkyCity and Precinct Properties take big liquidated damages provisions out of the convention centre and Commercial Bay projects: both fixed-price deals.
Fletcher chief Ross Taylor made it clear at last year's annual meeting he wants a third of the construction division's projects to be alliances, to diversify its portfolio.
A graph presented to shareholders last November suggests that would mean construction revenue from alliances needs to almost triple from FY2019 to FY2023.
In the last six months of 2019, the Hamilton Edge Expressway was the only alliance on Fletcher's books with a contract value of more than $200 million.
The problem with having skin in each other's games is that the airport's pain is now Fletcher's too. Photo / Grant Bradley
The question is, how many more of these alliances can Fletcher get over the line?
Some have noted that the airport terminal is such a complex job that it requires flexibility and should be treated in the way that a roading contract might be, but more straightforward vertical builds - and Fletcher has suggested it wants to do more of these - won't warrant alliances.
It's not clear what client appetite really is.
Infrastructure NZ chief executive Paul Blair said alliances have been very successful for roads and waterways and the industry needs to change.
"I'm not aware of any other projects in vertical construction – it's a kind of chicken and egg situation where you need to see success and runs on the board. But there's never been a better environment for that to happen."
Fletcher construction chief Peter Reidy is key to this and has a reputation as an able operator. His ability to strike seemingly impossible deals - including one with unions during his time at KiwiRail - has been praised.
More recently, he's advocated sector reform and chairs the Construction Industry Accord made up of government and industry players.
"What Peter's done, which no-one else is prepared to do, is stand up in front of everyone and say where we've got to as an industry, and from an NZ Inc perspective, looking down at the scale of work that needs to happen is that we have to sort this out because we can't have a dysfunctional industry," said Bell Gully property partner Ian Becke.
The big unknown is what happens in the coronavirus-impacted environment. The terminal project is meant to start at the end of this year for first stage completion in 2023.
Since February, government restrictions to respond to coronavirus have battered the outlook for the airport. It has suspended its capital expenditure programme, having previously indicated it would spend between $450m and $550m this financial year.
In his press release, Reidy said the "genuine collaboration" was a step forward for the industry.
However, the problem with having skin in each other's games is that the airport's pain is now Fletcher's too.
