'The system is broken': What's wrong with building sector?

New Zealand's construction sector is broken, with decades of financial failure and endangered by fixed-price tendering, a boss says.

Graham Burke, president of the NZ Specialist Trade Contractors Federation which represents thousands of contracting firms, said the industry had deep-seated issues to address after last week's receivership of Ebert Construction, which PwC receiver John Fisk has estimated had debts of about $40 million.

Burke, chief executive of Scaffolding, Access & Rigging NZ, said of the construction sector: "The system is broken. We have had more than 20 years of financial failures. We are really concerned that head contractors are tendering fixed prices on open-ended projects, which is a particular problem on design and build projects."

The sector has seen Ebert go into receivership last Tuesday, the ex-Hawkins or Orange H Group in liquidation owes about $41m and Fletcher Construction has withdrawn from high-rise building.

Burke said paperwork was too lax.

"Tenders are being let with minimal documentation as far as scope combined with incredibly complex contracts which push all risk from the client to the contractor and supply chain," he said.

Ebert's receivership has sparked wider industry concerns. Photo/Jason Oxenham

The federation had fought for the retention regime "so that our members' retentions are not left unpaid when this happens."

The federation was now waiting to see what happened with Ebert, where Fisk said retentions - money potentially available to creditors - were about $3.5m.

"Our concern is the recent 2018 BDO Construction Survey found that nearly one-third of construction companies in New Zealand are not complying with the new retentions law. This is not good enough and we need the sector and Government to act," he said.

Everyone in the sector was focused on transferring the risk on to someone else and that was not sustainable, he said, predicting more failures.

"Risk is not being fairly allocated and lead contractors are taking on too much. This is having a huge impact on our members – subcontractors who are too often being left unpaid for the work they have done," Burke said.

Chris Hunter, managing director of building firm NZ Strong and ex-Hawkins Construction chief executive, said the industry was in a state of flux because of the booming market, high workloads, skills shortages, construction companies' failing projects and rapidly-rising prices for materials.

The traditional top-end players like Fletcher Construction and Hawkins had either left the high-rise market or been taken over by Australians. So building here will cost more, he said.

He predicts that overseas builders will demand far more detailed design documentation before they bid, in an attempt to make contracts less risky, "particularly if it's a build-only contract, not just design-and-build. Clients can expect to face a tighter and more demanding contractual environment as these companies are in New Zealand to make money".