NEW ZEALAND CIVIL CONTRACTING
Building communities Fulton Hogan creates, connects and cares for communities; building the roads, ports, airports, infrastructure and property which bring people together. Contact us: Phone: 03 357 1400 Email: firstname.lastname@example.org www.fultonhogan.com
PERSPECTIVES 2015 FOREWORD
05 The view from the top By Bill English, Minister for Infrastructure, New Zealand
07 Keeping on the move By Simon Bridges, Minister of Transport
10 Working through partnerships By Geoff Dangerfield, chief executive, NZ Transport Agency
12 Towards a safer workplace together By Gordon MacDonald, chief executive, Worksafe
14 Collaboration is the key By Helmut Modlik, chief executive, Connexis
16 New era for road funding By Lawrence Yule, president, Local Government New Zealand
20 Going forward as one By David Connell, president, Civil Contractors NZ
22 A national resource second only to water By Roger Parton, chief executive, Aggregate & Quarry Association of New Zealand
24 Opportunities and challenges By Jonathan Bhana-Thomson, chief executive, NZ Heavy Haulage Association
26 Moving forward By Rod Auton, executive officer, Crane Association of New Zealand
28 Gaining momentum By Rob Gaimster, NZ Ready Mixed Concrete Association
30 Unreasonable contract conditions By Kieran Shaw, chief executive, Association of Consulting Engineers New Zealand
32 The view from across the Tasman By Robert Row, chief executive, Civil Contractors Federation Australia
36 Reviewing the construction boom By Dr Ganesh Nana, chief economist, Business and Economist Research
38 An era of automation By Mike Milne, managing director, Synergy Positioning Systems
40 Outlook for recruitment By Jason Walker, managing director, Hay Recruitment Specialists
42 Making hay: outlook for 2015 By Sam McCutcheon, solicitor, Kensington Swan’s National Construction Law Team
44 Reflections from the road By Robert Jones, chief operating officer, NZ Infrastructure, Fulton Hogan
46 Better contracting design and planning By Stuart Tucker, general manager, Civil Infrastructure, Beca
48 Advertisers’ index CONTRACTOR PERSPECTIVES 2015
NEW ZEALAND CIVIL CONTRACTING
PUBLISHER Contrafed Publishing Co Ltd Suite 2.1, 93 Dominion Road, Mt Eden, Auckland PO Box 112357, Penrose, Auckland 1642 Phone: +64 9 636 5715 Fax: +64 9 636 5716 www.contrafed.co.nz GENERAL MANAGER & EDITOR Kevin Lawrence DDI: 09 636 5710 Mobile: 021 512 800 Email: email@example.com
Welcome to the inaugural issue of Contractor Perspectives – an exciting new industry annual publication made up of commentary written by industry peers from government level to the associations representing every sector involved in making civil contracting in this country a success. Our contributors have provided a rich commentary with great insight into their respective industry sectors and we thank them very much for their wise words. While some look back on the past year and look into the crystal ball for the future, others take a broad look at the ‘state of play’ and the numerous regulatory reforms that came into effect over 2014 and will continue into 2015. Over the years we will build up an annual, benchmark commentary on our contracting industry as a record of views and opinions as seen from the inside. As you will read, the 2014 year was a very active one for contractors in terms of Government funded projects and the rebuild of Christchurch city. The 2015 year will only get busier. You will pick up a number of themes threaded through most sector comment and they include partnerships, health and safety, and technology. The equipment we use as an industry is becoming more and more sophisticated in terms of wireless technology and automation. This, in turn, is placing more emphasis on equipment skills and training. New health and safety regulation will be hitting home over the next 12 months and the industry will enter a new era of responsibility and liability. Many of our contributors talk about ‘partnership’ and moving forward together, because this is the only way forward – collaboratively. As Geoff Dangerfield, the chief of the Transport Agency, says about the agency’s relationship with contractors; “We are partners, and we’re joined at the hip.”
EDITORIAL MANAGER Alan Titchall DDI: 09 636 5712 Mobile: 027 405 0338 Email: firstname.lastname@example.org ADVERTISING / SALES Charles Fairbairn DDI: 09 636 5724 Mobile: 021 411 890 Email: email@example.com ADMIN / SUBSCRIPTIONS DDI: 09 636 5715 Email: firstname.lastname@example.org PRODUCTION Design: TMA Design, 09 636 5713 Printing: PMP MAXUM Articles in Contractor Perspectives are copyright and may not be reproduced in whole or in part without the permission of the publisher. Opinions expressed in this magazine are not necessarily those of the shareholding organisations.
The official magazine of Civil Contractors NZ www.civilcontractors.co.nz The Aggregate & Quarry Association www.aqa.org.nz The New Zealand Heavy Haulage Association www.hha.org.nz The Crane Association of New Zealand www.cranes.org.nz
Read on, enjoy, and learn.
Rural Contractors New Zealand www.ruralcontractors.org.nz
The Ready Mixed Concrete Association www.nzrmca.org.nz
Editorial manager, Contrafed Publishing
CONTRACTOR PERSPECTIVES 2015
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The view from the top BILL ENGLISH, MINISTER FOR INFRASTRUCTURE, NEW ZEALAND
It could be argued that infrastructure is working at its best when members of the public rarely give it a second thought.
AS CITIZENS OF a developed country we take for granted that
unless some unforeseen event occurs, the power will be on, the water supply will be reliable, wastewater and sewerage systems will work properly and transport networks will efficiently get people and goods where they need to be. However, the people whose task it is to plan, manage and maintain New Zealand’s infrastructure – including the Government – do not share that “out-of-sight, out-of-mind” approach. Since the National-led Government was elected in late 2008, ministers have understood the importance of infrastructure not only to New Zealanders’ way of life but as one of the essential elements to the efficient functioning of our growing economy. That is one of the reasons that Building Infrastructure was chosen as one of the six key areas of focus in the Business Growth Agenda, which is central to the Government’s commitment to providing the conditions that allow businesses to grow. Despite the domestic recession and global financial crisis when National took office in 2008, the Government has made a multi-billion-dollar investment in important infrastructure including roads, rail, ultrafast broadband, irrigation, electricity transmission and the rebuilding of Christchurch. We have also provided more certainty for businesses by producing the National Infrastructure Plan which outlines the Government’s intentions for infrastructure development over a 20-year timeframe. The plan sets out a vision that, by 2030, New Zealand’s infrastructure is resilient, coordinated and contributes to economic growth and increased quality of life. This will involve better use of existing assets and better allocation of new investments. In 2014 we published our first 10-year Capital Intentions Plan. This aims to help the Government make better use of its $120 billion worth of existing assets, because even small changes can have significant ongoing fiscal impacts. We also want to be smarter about investing in new infrastructure, ensuring all investment is underpinned by robust analysis and being always conscious of our need to be careful stewards of public money. The Government is currently spending about $1 billion a
year on Auckland transport infrastructure alone, including our investment in very large projects like the Waterview Connection, the widening of the North Western Motorway, the electrification of commuter rail, and the acceleration of motorway projects on the Northern and Southern Corridors. Other projects include: • $725 million invested in the national electricity transmission grid over the past three years, with a further $230 million forecast for the 2015 year; • About $690 million invested in the roll-out of ultrafast broadband and the Rural Broadband Initiative; • The $12.28 billion national land transport programme between 2012 and 2015 – the largest ever in New Zealand; • $1.74 billion expected investment in public transport between 2012 and 2015 – a 21 percent increase over 2009–2012; • $1 billion allocated to the 21st Century Schools from the Future Investment Fund; • $1.83 billion of estimated infrastructure spending in Christchurch and another $1.48 billion of estimated spending on Crown assets following the earthquakes. Our investment has added almost $16 billion of infrastructure assets to the Government’s books over the past three years alone, and has supported thousands of jobs across the country while building a solid platform for sustainable economic growth. Earlier this year we published, for the first time, a comprehensive analysis of the performance and condition of New Zealand’s infrastructure networks. This National Infrastructure Evidence Base notes that we face a range of infrastructure challenges, including from technology and demographic changes. Therefore, our traditional ways of spending more and building more infrastructure will need to change to meet those challenges. I said at the time the base was launched that there is plenty of scope to use our infrastructure assets better, to manage and smooth our demand and to optimise our investment. Our commitment to sustainable growth is real and tangible. We look forward to continuing to work alongside others on the development and funding of infrastructure that is affordable and that will support our economy and our way of life for generations ahead. CP
CONTRACTOR PERSPECTIVES 2015
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Keeping on the move SIMON BRIDGES, MINISTER OF TRANSPORT
We are all heavily reliant on a transport system that safely brings goods and people to where they need to go, when they need to be there. TRANSPORT CONTRIBUTES TO access – at its most basic level, it is about moving people and goods from point A to point B. At its most effective level, transport can be an enabler, driving growth, trade and employment. The Government’s overall objective for transport remains an effective, efficient, safe, secure, accessible and resilient transport system that supports the growth of our economy, in order to deliver greater prosperity, security and opportunities for all New Zealanders. Transport is a major component in the success of our economy. The Government has a set of key priorities, and transport makes a large contribution to a number of them. Our priorities include investment in modern infrastructure, business growth, safety and security, and responsibly managing the Government’s finances. Central Government invests around $3 billion a year in land transport activities including road improvements and maintenance, public transport, road safety and walking and cycling. For this investment I am looking forward to the completion of a number of projects in the Roads of National Significance programme, as well as ongoing maintenance of our highway network, continued improvement in public transport services and an ongoing commitment to lowering the road toll. This investment will be complemented by the $212 million Accelerated Regional Roading Programme, announced by the Prime Minister early in 2014, to accelerate 14 regionally important State highway projects around the country. We also have an ongoing commitment to the Kiwirail Turnaround Plan. The Government has invested $1.04 billion since 2010 to help KiwiRail become self-sustaining, and it is pleasing to see freight volumes increase in recent years.
and growing the economy more generally. The transport system has an important role in ensuring that the additional exports (and their associated input goods) are able to move efficiently and effectively around the country and internationally. We want to create export opportunities for New Zealand businesses. Our distance from most of our international markets makes it essential that we continue to focus on improving access to these markets. We have negotiated 30 new or amended air services agreements in the past two years and are working to clear regulatory barriers for strengthened air connections and working to enable airlines to fly or code-share to New Zealand.
Safety and energy Improving the safety and security of our transport system remains a primary goal for the Government. There were 250 fatalities on our roads in 2013. This is not an acceptable outcome. While we have seen significant improvements in road safety outcomes under the Safer Journey action plan, we must not let those gains slip away. I am also conscious that the transport sector accounts for almost 40 percent of the country’s energy use and is the source of about 20 percent of greenhouse gas emissions. About 90 percent of these come from road transport. The Government is investing in public transport, walking and cycling and increased road capacity where required, in addition to providing more information to consumers around achieving greater fuel efficiency. We expect these investments will help manage congestion and emissions as New Zealand’s population grows.
The 2015 year A wider view As part of our priority to invest in modern infrastructure, we are aiming to increase the overall quality of the public services we provide. This includes digital interactions, for example when carrying out licence transactions with the NZ Transport Agency. Within the Government’s Business Growth Agenda we have the goals of raising exports from 30 to 40 percent of GDP by 2025,
Central and local government together invest over $4 billion a year into the transport system, and we will continue to ensure that every dollar spent is well spent. I am seeking a clear forward investment strategy across the land transport network, to provide a system that will be robust for future needs, and will not impose unnecessary costs on commuters or the economy. CP
CONTRACTOR PERSPECTIVES 2015
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CONTRACTOR PERSPECTIVES 2015
Working through partnerships GEOFF DANGERFIELD, CHIEF EXECUTIVE, NZ TRANSPORT AGENCY
The Transport Agency has a very close relationship with contractors on every level, and it is a ‘partnership’ that is only going to get closer and stronger. WE’VE JUST FINISHED a busy year, and we expect this year will be even busier for the NZ Transport Agency and our transport sector partners as we continue to work together to keep the nation moving. People use the transport network to move their freight to local or international markets, to travel to work or as visitors to our beautiful country, to connect with loved ones or to unwind somewhere. We value the contribution each of our partners is making to ensure people can do all that easily, safely and efficiently.
Innovation is key Despite the constrained funding environment we’re challenging ourselves and encouraging our transport partners to think innovatively in pursuing value for money and improved safety and performance in maintenance and operations.
Regionally Delivered model – tailored to meeting levels of service in line with customer expectations through a nationally consistent maintenance contract. Another key development this year has been the One Network Road Classification (ONRC). The ONRC involves categorising roads based on the functions they perform as part of an integrated national network. The classification will help local government and us plan, invest in, maintain and operate the road network in a more strategic, consistent and affordable way throughout the country. We’ve seen another year of action and innovation with good progress on the Roads of National Significance (RoNS) programme. The aims of the RoNS projects are to reduce congestion in and around our five largest metropolitan areas, improve road safety and link our major sea ports and airports more effectively into the state highway network.
Seven RoNS 1. Victoria Park Tunnel, complete 2. WRR in construction, to complete 2021 (Waterview Tunnel open 2016) 3. Puhoi to Wellsford, completion 2024 4. Tauranga Eastern Link, completion 2015 5. Waikato Expressway, completion 2019/20 6. Wellington Northern Corridor in development, completion 2022 7. Christchurch Motorways, completion 2020
Estimated programmed renewals, maintenance and operations cumulative savings against target
To enable this we’ve changed many features of our maintenance and renewals activities. Our intent has been to make these activities more efficient, to get better value for money, and to provide customers with better services. These maintenance contracts, the Network Outcome Contracts (NOCs), have led to the development of a Nationally Planned,
CONTRACTOR PERSPECTIVES 2015
Key achievements this year include the start of construction on the Wellington Northern Corridor, and in July 2014 the Agency signed a Public Private Partnership (PPP) contract with the Wellington Gateway Partnership to design, construct, finance, operate and maintain the new Transmission Gully motorway. In Auckland, Alice the tunnel boring machine broke ground and has made excellent progress on completing the first of two tunnels that are key parts of the Waterview Connection project. The Christchurch RoNS projects remain a critical component of our contribution to growing Canterbury this year.
Valuing solid partnerships I’m pleased with how the relationships and partnership between us and our suppliers have developed over the past
“I’m pleased with how the relationships and partnership between us and our suppliers have developed over the past few years. In my view this partnership is stronger than it’s ever been.”
few years. In my view this partnership is stronger than it’s ever been and is helping us make a step change in the health and safety performance in the transport sector. The leadership forum made up of senior Transport Agency staff and chief executives of leading contractors and organisations is making a huge contribution to introducing a sector-wide approach towards the safety of staff and others who visit or travel through worksites. Strong partnerships usually result in innovative approaches, and this forum is no exception. We’re improving the way we identify hazards to reduce work-related deaths, injuries and illnesses in the highest risk areas. Several projects to improve health and safety performance across the state highway sector have been identified. The projects are being managed by people from across the sector and once completed, will be applied by all participating organisations.
Zero harm Last July we signed up to working towards Zero Harm. This will be supported by implementing our Zero Harm strategy 2014–2020, with our goal being that all people including our employees, contractors, subcontractors, consultants and temporary workers go home after working in a safe and forgiving environment. This cannot be achieved in isolation; we will work with other similar organisations and our industry partners to achieve the required step change we as a country need to make. We are working closely with the industry to ensure we are learning from and sharing all our expertise as our aim is to make the roading industry an exemplar for other industries to follow here in this country and overseas. This can be achieved by continuing to use the unique collaborative environment we have here in New Zealand. Cycle safety is an important focus for us. We convened a Cycling Safety Panel during 2014. The panel is developing an innovative, comprehensive and practical set of recommendations for how central and local government can ensure that on-road cycling is provided as a safe transport option. In August 2014, the Government announced that an additional $100 million of Crown
funding will be made available over the next four years for urban cycling infrastructure, in addition to the current funding provided through the National Land Transport Programme (NLTP).
Solid transport investment through strong partnerships The NLTP will invest about $14 billion over the next three years in areas such as local road and state highway improvements and maintenance, public transport and walking and cycling, regional improvements, road policing, road safety promotion, and investment management including research and planning. Our thinking around this has been shaped by some big ideas: the emphasis on a one network co-investment approach; national and inter-regional perspectives; value for money; and putting customers at the heart of our thinking. These big ideas have also influenced our work with partners and stakeholders on one of the key building blocks of the next NLTP – the One Network Road Classification (ONRC). We will progressively move to adopt the ONRC levels of service as we roll out the future NOC contracts, with levels of service similar to those in the current NOCs. Our value add comes from how well we do this. The more cost we take out of maintenance and renewal with no impact on our ability to achieve the targeted ONRC levels of service the better. By outsourcing the majority of works and services for our construction projects on the state highway network to contractors, we’re jointly making a huge contribution to this country’s economic wellbeing. When people see our contractors it reflects us. We are partners, and we’re joined at the hip. The Transport Agency touches the lives of most New Zealanders at some point. We regard each New Zealander as our customer, and we’re committed to delivering effective transport solutions for them, our stakeholders and our partners. We do this through collaborative, open and transparent ways of working. I’m looking forward to another year of working successfully with our partners to create value and help the nation continue to thrive. CP
CONTRACTOR PERSPECTIVES 2015
Towards a safer workplace together GORDON MACDONALD, CHIEF EXECUTIVE, WORKSAFE
It has been a landmark year for health and safety under the auspices of the new government agency, but it will take a coordinated and collaborative approach to make it work. WORKSAFE NEW ZEALAND was established just over a year ago
with a clear goal – to reduce the unacceptably high rate of serious workplace injuries, ill-health and fatalities. Simply put, our job is to help Kiwi companies and workers ensure that everyone goes home safe and healthy at the end of the day. It’s not a job that WorkSafe can do by itself as the health and safety regulator. It will require the efforts of all of us; from the boardroom to the shop floor, from management to worker, contractor and everyone in between. We all have a part to play in making our workplaces safe. As a stand-alone Crown agency, WorkSafe has been given a mandate to do things differently. We can’t change New Zealand’s workplace safety culture by inspections, infringement notices and prosecutions alone. In addition we need to educate and engage on how workplace risks can be effectively managed. WorkSafe promotes and champions positive attitudes towards health and safety, because in the end it is only those that create the risk in the workplace that can manage those risks day-in, day-out. That is the only way to achieve lasting change for the better. There is perhaps no better demonstration of WorkSafe’s new way of working than our approach to the Canterbury rebuild. We all know the rebuild is full of challenges, and it would have been all too easy for health and safety to have been overlooked given the sheer scale of the task. Instead WorkSafe has worked closely with the building and demolition sector through the Canterbury Rebuild Safety Charter. The Charter has more than 160 signatories – from major building and construction companies to labour hire companies, government agencies and trade bodies. It has been incredibly heartening to see such a range of organisations coming together to make health and safety a priority during the rebuild. Our work alongside the local industry in Canterbury has been one of the highlights of WorkSafe’s first year: WorkSafe has hosted more than 2200 construction workers and contractors at trade breakfasts and seminars in Canterbury focusing on high-risk areas such as asbestos, excavations, mobile plant, falls from height and fatigue since August 2013. We’ve produced relevant guidance in these high-risk areas including an Asbestos Toolkit (eight factsheets), mobile plant safety factsheets, and a factsheet on fatigue in construction. In Canterbury, the team of rebuild assessment inspectors has more than doubled since January 2013 and been bolstered by construction inspectors seconded from WorkCover
CONTRACTOR PERSPECTIVES 2015
New South Wales. We continue to work closely with industry to support the Canterbury Rebuild Safety Charter. Since July 2013 the number of signatories and endorsees to the Charter has more than tripled and is continuing to grow. WorkSafe provides secretariat and communications support to the Safety Charter, as well as funding the Safety Charter’s selfassessment tool, a report on leadership in health and safety and communications material including a monthly newsletter, regular events and campaign materials. The Safety Charter and other work to support the safe rebuilding of Canterbury is the sort of innovative approach that WorkSafe needs to take if we are to achieve the Government’s target of reducing serious workplace injuries and fatalities by 25 percent by 2020. It is an ambitious goal, but in its first year WorkSafe has made a solid start laying the groundwork to achieve it: We have grown to 500 staff spread across the country, with the inspectorate increasing from 191 to a 316-strong team. The Guidance and Standards team has increased its capacity and capability – there are 700 items in their catalogue. With new health and safety legislation on its way in 2015 there are 40 guidance projects to help businesses and workers come to grips with the new law and regulations. There has been significant investment in our intelligence capability, so we can use data to make informed decisions. That will help WorkSafe create profiles of high-risk sectors, like forestry, to help the team develop and deliver interventions that will be effective and targeted to risk. Progress is then tracked so we can see what is working. The Health and Safety Alliance of New Zealand was launched creating one umbrella representative body for health and safety professionals. The Safer Forest Harvesting project has continued to work in partnership with the sector and with the release of the Independent Forestry Safety Review, the focus on improving safety in our forests has never been sharper. Our Preventing Falls from Height campaign has had a very positive response since its launch in 2011 – data shows a 25 percent drop in serious harm accidents involving falls from heights. Again, we have worked with the sector on this achievement. So looking back on 2014 a huge amount has been achieved –
but there is still a lot more to be done. This year (2015) will see the passage into law and introduction of the new Health and Safety Reform Bill. At the time of writing, the Bill is still before Parliament and so is not yet in its final form but it represents the most positive change to health and safety law in a generation. The new law will better reflect the modern workplace, and will more clearly lay out the obligations and overlapping duties that employers, contractors, workers and directors have to keep everyone safe at work. The Health and Safety Reform Bill introduces the concept of a Person Conducting a Business or Undertaking, known as a PCBU. PCBUs are in the best position to control risks to work health and safety as they are the ones carrying out the business or undertaking. That’s why the PCBUs will have the primary duty under the new law. The WorkSafe website contains plenty of useful information about the legislation and will be updated during the year – it is definitely worth checking out as you come to grips with the new legal environment which will comes into force later in 2015. Alongside the new legislation there will also be new regulations and new guidance developed to help support businesses and workers. Preparing that material and educating and informing people about the new health and safety environment will be a top priority for WorkSafe over the next 12 months. So 2015 is shaping up as a landmark year for health and safety in New Zealand. WorkSafe will play its part supporting both employees and employers – but in the end it is up to all of us to ensure that our workplaces are safe. CP
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Collaboration is the key HELMUT MODLIK, CHIEF EXECUTIVE, CONNEXIS
With a strengthened training representative organisation through mergers, it is now appropriate to treat major infrastructure as a strategic subject, where planning, finance and delivery are all driven by a collective, long-term vision of better communities and economies.
THE PAST 12 MONTHS have been a time of challenge and change for everyone in the infrastructure industry, including Connexis (the infrastructure industry training organisation) and we are preparing for more of the same in 2015. A major change for us this past year has been bedding down our merger of InfraTrain (civil construction) and ESITO (electricity supply and telecommunications) ITOs. As well as aligning and improving our systems and processes, we have strengthened our focus on and commitment to our customers – employers and trainees. The merger aimed to create a ‘one-stop-shop’ for employers in the infrastructure industry, and has been a success from an operational and financial standpoint, and from the feedback received from our customers so far. We see the merger as a strategically important development for the industry sectors we serve. The rationalisation of ITOs in recent times, from 52 training organisations, to 38 and now just 12, means that those remaining have critical mass and can focus entirely on meeting customers’ needs instead of financial survival. In our case, our larger customers often have broad operations that run across a wide range of infrastructure industry sectors. Our aim is simply to align ourselves and the industry training we are responsible for, to best meet those needs. At the moment we serve civil construction, electrical supply and telecommunications, however in the year ahead we expect to announce the inclusion of other sectors into the Connexis infrastructure industry fold. As we have engaged with industry during 2014, including participating in leadership forums where the challenges around planning, delivering, maintaining and funding infrastructure have been considered, the strategic nature of infrastructure has been crystal clear. Indeed, a key observation has been that infrastructure and everything associated with it is inherently strategic in nature ie, long term, exceedingly expensive, and ‘game-changing’ for the communities involved, and even the nation. It is therefore appropriate that major infrastructure is treated as a strategic subject, where planning, finance and delivery are all driven by a collective, long-term vision of better
CONTRACTOR PERSPECTIVES 2015
communities and economies. However, a vital element of that vision, planning and delivery that is consistently missing, is the strategic perspective and approach to ensuring the skills and availability of the people who actually build and maintain the infrastructure! Why is this? We think ahead to anticipate the planning requirements, the environmental impacts, the regulatory implications, the funding, etc, everything it seems, except the competence and availability of the people who will deliver and maintain the assets in question. We need strategic thinking when it comes to infrastructure industry people… trades people. A key example of such thinking is the development and launch in 2015 of the Civil Trades Certification Regime being delivered by Civil Contractors New Zealand in conjunction with Connexis. The implementation of Trade Certification will be a huge step forward for the industry. It will result in lower costs with less rework and reduced supervision. It will mean improved tender attributes and enable consistent, industry-wide recognition of required skills. It will enable us to offer “a career”, rather than just “a job”, to the quality young people considering our industry. It will support the vocational pathways being implemented in secondary schools, and raise the awareness of career opportunities, making our industry more attractive to more, better calibre young people. It will enable us to recognise the people who already have the skills, and provide them with formal qualifications. We clearly need to attract and upskill new industry entrants; these will be skilled people created by industry for industry, a “strategic” objective that will be enabled by the new Civil Trades regime – an excellent example of thinking strategically about infrastructure people. Thinking, and more importantly behaving strategically does not however require a ‘big project’ or initiative like the Trade Regime. It can be as simple as agreeing to collaborate. For example, if employers are only focused on “their” proprietary training then they are clearly not thinking strategically… at least not clearly! Here’s why. Across the board the infrastructure industry is faced with the same issues and challenges to a larger or lesser extent. These include an overall
The rationalisation of ITOs in recent times, from 52 training organisations, to 38 and now just 12, means that those remaining have critical mass and can focus entirely on meeting customers’ needs instead of financial survival.
skills shortage, an ageing workforce, increased challenges around health and safety, striving to offer careers and not just jobs and all the time having employers chasing the same pool of people. There is a better way than just focusing on our own, “win-lose”, parochial concerns and perspectives. It is to see the issues and challenges from a wider, industry perspective, and to collaborate in its resolution. This will create economies of scale, synergies and opportunities for shared costs and benefits, and will inherently create more “win-win” outcomes. It just doesn’t make sense to try to solve such strategic challenges in tactical, isolated or disconnected ways. We will be a more effective, safe and profitable industry by simply working together on
training our people. There is no suggestion that the challenge ahead is all with industry. We know at Connexis that this is a crucial part of what we do. It is also part of our commitment to being authentically customer centric. Just as we are urging collaboration across the infrastructure industry we will be striving for greater collaboration with our customers and this will be key in 2015. We are here to serve industry and help companies raise the bar when it comes to skill levels. We want to hear from you, tell us what you need from us and how we can work strategically together. CP
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New era for road funding LAWRENCE YULE, PRESIDENT, LOCAL GOVERNMENT NEW ZEALAND
Local government invested over $1 billion in roading over the past year and the year ahead will be a time of transition for local government when it comes to future local road funding. THERE WERE CHANGES to road and transport funding in
2014 (Funding Assistance Rates review, One Network Road Classification) that determine how much money councils have to spend on roading. They impact contractors down the line in terms of the number and scale of projects they are able to hire roading contractors for. Local and regional roads that councils are responsible for make up around 88 percent of the country’s road length. These roads carry up to eight times as much tonnage of primary produce as the processed and manufactured products carried to port on the state highway network. Local government invested more than $1.23 billion in local government roads in 2012/13, including expenditure on new infrastructure, maintenance, renewal and operations. Road funding is now a hypothecated (co-investment) process, drawing from both a council’s rating base and from national revenue streams primarily delivered through the Funding Assistance Rates (FAR) administered by the NZ Transport Agency. Prior to 2014, the last major changes to how FARs are set were made in 1979-80. For the past several years, local government raised potential issues and problems with the setting. Prior, the ways in which FARs were set varied, and was based on a less transparent approach predicated on a Council’s relative ability to raise the local share investment and the relative cost of the approved roading programmes. Consequently, the NZTA embarked on a two-stage consultation process from early 2013 to early 2014. The results change the way roading is funded for the local government sector. The policy for setting territorial authority FARs is based on setting a level of funding assistance that takes into account the size of the authority’s approved roading maintenance and renewals programme and the net equalised land value (NELV) for the authority, which indicates the financial resource available to the authority through its ability to rate. Today, FAR rates are set through measuring a combination of kilometres divided by road value, rating units and deprivation index categorisation. This technique also determines organisations that will receive enhanced funding assistance rates. The approach is intended to provide a more transparent, flexible, fair and predictable plan for funding over the next decade. Under the new FAR review process, the NZTA advised in November 2014 that the overall co-investment rate for all local
CONTRACTOR PERSPECTIVES 2015
transport programmes combined will be 53 percent. Some councils will receive a higher or lower FAR based on their relative ability to fund their share. A minimum rate of 51 percent has been set, with a top rate of 75 percent for mainland councils and 85 percent for the Chatham Islands. The agency’s role was to allocate the funding pool provided by Government, and Government’s role is to set the size of the funding pool. Not every council throughout the country will be happy with the FAR decisions for road funding, but the balance struck appears generally fair when the funding pool available is taken into consideration. The Government Policy Statement sets out the Government’s priorities from the National Land Transport Fund over the next 10 years.
Aims of the Funding Assistance Rates The FAR system was created to support optimal national land transport outcomes being achieved in the right way, at the right time and for the right price. This will contribute to the provision of an effective, efficient, safe, responsible and resilient transport system. It aims to facilitate land transport network users experiencing an integrated and appropriately consistent network throughout the country. Costs of the land transport network will be split between direct land transport system users and local communities, recognising that each of those groups affects and benefits from that work. The FAR should provide as much investment certainty as practicable, be efficient to apply, be based on evidence and data that is readily accessible and available and ensure that if there are variations on how the funding assistance rates are set or applied to address outliers or exceptions that this is done transparently. It is vital that local and regional roads receive adequate investment to be functional, safe and help facilitate economic benefits for all New Zealanders. The sector engaged extensively with the Transport Agency throughout this process. LGNZ lobbied the Government to carefully consider the size of its funding pool for land transport and to make sure that allocation of funding for local roads across the country is set at the right level. As I write this at the end of 2014, the sector is looking to the total funding pool that will be made available under the Government’s Policy Statement on Land Transport Funding, and this was expected to be announced shortly. LGNZ wants
appropriate funding for all areas of New Zealand. This is a particularly important issue for rural and provincial New Zealand.
One Network Road Classification The Transport Agency’s One Network Road Classification aims to help local government invest in, maintain and operate the
road network in a more strategic, consistent and affordable way throughout the country. The classification involves categorising roads based on the functions they perform as part of an integrated national network, to get ideal service levels and investment for each category. Road classification involves categorising roads based on the main function(s) each category of road performs – for example, the movement of freight, for tourism, or for everyday travel, to provide appropriate access to locations and demand generators and to recognise the importance of ‘place’. Place is particularly important at the local level and in urban environments. Defining customer levels of service outcomes that are ‘fit for purpose’ for each category is a key part of the work associated with defining the attributes of each category of road and so is an integral part of this project. However, roads and routes in the same defined category will not necessarily always look the same throughout the network – a suburban street and rural service road may be classified the same but look different. Some longer distance routes such as a state highway passing through communities might change their local function and look along their length. Also, the role of some roads changes during the day, especially in urban areas – a road might service passenger transport priorities in morning and afternoon peaks, while pedestrian needs might feature more highly during the day. Lastly, freight and the servicing of premises might take place outside these hours. LGNZ has been working directly with the local government sector to implement the One Network Road Classification. Equip, LGNZ’s Centre of Excellence, and NZ Transport Agency formed the Road Transportation Unit to provide councils with customised assistance for best practice around roading. It aims to give councillors, chairs and mayors the knowledge that their council is planning for, and delivering best practice in activity management planning and that value for money is being delivered with fit for purpose levels of service. Activity management plans are required under the Local Government Act and provide a planning framework for councils. The Road Transportation Unit supports with both governance and management as councils implement transitional activity management plans. The year ahead will be a time of transition for local government when it comes to road funding. CP
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Going forward as one DAVID CONNELL, PRESIDENT, CIVIL CONTRACTORS NZ
After the merger of the Contractors’ Federation and Roading New Zealand associations, the new Civil Contractors entity is preparing for a busy and exciting year as it moves forward with new initiatives and projects for members. BEFORE I OUTLINE our key priorities, I want to pay tribute to the
contribution Jeremy Sole has made to our organisation. Jeremy has achieved more than any previous CEO, expanding the role and engaging with more sectors of the industry than we have in the past. He has significantly increased the focus on health and safety, particularly through his work with the Construction Safety Council, and facilitated the integration of the Contractors’ Federation and Roading NZ to form Civil Contractors NZ. We wish Jeremy the very best for the future. There is considerable interest in the vacancy created by Jeremy stepping down. A number of people have already put their names forward and, at the time of writing, we are preparing to advertise the role. It is critical that we find the right person and the recruitment process will be extremely thorough. In the meantime, members can be assured that it will be business as usual with the staff team and board members covering all the responsibilities normally undertaken by the CEO. Looking forward, the most urgent item on our board’s agenda is supporting our members to ensure they achieve compliance with WorkSafe’s requirements under the new Health and Safety in Employment Act, which will come fully into force in 2015. The landscape has changed and the days of simply working off a template are over. Businesses will require someone with expertise who can work alongside them to integrate their company’s operation into documentation. CCNZ does not have the resources to run that kind of service, but we do have the resources to find the very best provider.
Another key focus, going forward into 2015, is relationships. We are in a position of enjoying very good relationships with local and central government and with government organisations, including the New Zealand Transport Agency (NZTA).
CONTRACTOR PERSPECTIVES 2015
The process to find the right people and system is under way. We are reviewing QEST and have been looking at what other organisations, such as our Australian counterparts, are using. We are committed to ensuring that the people and the health and safety system we put forward to our members is one that every member of our industry can have absolute confidence in. Another key focus, going forward into 2015, is relationships. We are in a position of enjoying very good relationships with local and central government and with government organisations, including the New Zealand Transport Agency (NZTA). Continuing to maintain such relationships and build new ones is critical for our organisation and our industry and will be a key emphasis for us. We aren’t always all going to agree on everything but I’m confident that the strength of relationships with stakeholders will ensure that, if we don’t, then we will work with them to find solutions. We hope to engage with WorkSafe New Zealand and I believe that CCNZ, as a new integrated single organisation, is in the best position to offer industry opinion and information when required across a broad range of issues. Contrafed is now publishing NZ Local Government magazine. This gives us a great opportunity to work closely with a sector that provides a large portion of our members’ work. Good work by LGNZ, the Contrafed board and staff. Encouraging more feedback from our members will be another key strategy in 2015. This is the lifeblood which enables us to not only engage with and inform stakeholders, but also to provide the best service to our membership. We see ourselves as a bottom-up rather than a top-down organisation. Every member of the board volunteers their services because of their commitment to the industry. We don’t see our role as telling members what to do – we encourage a constant stream of feedback from members telling us what they want to see happening. We welcome and rely on this information and ideas. That is why our phone numbers are on the CCNZ website. I’m only a phone call away – if you have an opinion, a concern, or something you would like us to address, then please don’t hesitate to call me. CP
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A national resource second only to water ROGER PARTON, CHIEF EXECUTIVE, AGGREGATE & QUARRY ASSOCIATION OF NEW ZEALAND
As a nation we must provide for access to rock and stone resources to ensure the future growth of the country; this is the challenge now and for the sector’s future. A STRONG ECONOMY and excellent quality of life are literally built on a foundation of aggregates. Aggregates touch our lives every day, from the driveway to the workplace, yet their importance to society is almost universally underestimated. The Aggregate and Quarry Association (AQA) represents the major percentage of quarry owners who are engaged in supplying this vital material. The AQA has for some time been concerned about the access to future aggregate resources, including the extension of existing quarry footprints. The importance of planning for ongoing access to our basic materials is something our councils must face. As a nation we are failing to provide for access to rock and stone resources to ensure future growth. “Premium aggregate resources are very limited and many have already been exhausted,” says Philippa Black, Emeritus Professor of Geology, School of Environment, University of Auckland. “Poor planning decisions and competing land uses have sterilised resources close to areas of greatest demand.” Consenting new resources is increasingly difficult, massively expensive and requires a long lead-time. The Government has many plans in place for major infrastructure development in New Zealand, but if we are to
The result has often been inadvertent planning restrictions: with a diminution of local aggregate supply. The AQA will continue to advocate better planning processes and a less restrictive legislative hierarchy so that resources are not sterilised for future demand. Many countries are planning at a national level for their aggregate supplies 50 years forward. New Zealand needs to be thinking about aggregate supplies in 2065, now!
Quarries and the environment Environmentalists and would-be neighbours can be strong objectors to quarry operations, which they perceive as dirty, noisy and environmentally unsustainable. Interestingly, while the aggregate exploration and extraction industry faces increased competition for the land use of potential quarrying sites – so does the natural flora and fauna. Paradoxically, fully operating quarries in Europe have demonstrated they are biodiversity havens, where a rich source of life can still find sanctuary, an unlikely outcome for other urban development. The industry takes its environmental responsibilities very seriously and quarries today aim to be as unobtrusive as possible
Consenting new resources is increasingly difficult, massively expensive and requires a long lead-time. have an affordable and sustainable infrastructure base we need to better manage our access to rock and stone. Central Government passes responsibility for deciding on access to such resources to local authorities. But there is no requirement for local bodies to consider the importance of providing for proximate (nearby) access to aggregate sources in long-term planning. This is not just a New Zealand issue as a number of ‘first world’ societies are starting to run out of aggregates close to their end use. Aggregates are a commodity that has largely been taken for granted. Environmental considerations and ‘nimby’ objections often result in long and expensive planning approval processes, along with some local bodies not knowing – or researching – where local aggregates form.
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to their surrounding habitats. The AQA has an Environmental Policy and encourages its members to minimise their impact on the environment while encouraging continual improvement in environmental performance. Recycling is part of our environmental conscience and this year saw the introduction of recycling statistics in Petroleum and Minerals annual surveys as a result of AQA representations. While the figures are small in comparison with international equivalents, it provides a good starting point to gain a much better understanding of how much aggregate is recycled here – the international average being around 15 percent versus virgin material. The AQA believes that there is actually a considerable and increasing amount of recycling already being carried out in this country, which has hitherto gone unrecorded. The AQA will continue to work with our members and Petroleum and Minerals
to gradually capture a more accurate picture. Recycling usually costs more than extracting original material but the short-term gain may well be at a long-term cost. Realistic targets for recycling need to be identified and worked towards.
Education and training Health and safety has been, and will continue to be, a major focus for the industry. Our submissions on recommendations to implement the Royal Commission on the Pike River Coal Mine tragedy successfully resulted in quarrying being separated from mining for future health and safety requirements. This proves the importance of cooperation and, as an industry, speaking with one voice to achieve workable and sensible outcomes. It is important that there is one body for the government to discuss matters affecting the industry as a whole – for while different sectors have differing needs, there is one objective: that people go home safely at the end of each working day. So we are now looking to the MinEx Health and Safety Council to provide industry-wide standards and statistical information. The AQA is represented on the board of MinEx. Our industry training organisation, MITO, which provides education for quarry staff, is working to reduce 20 extractive industry National Certificates and Diplomas down to five. Designed by industry, for industry, and developed in line with the Pike River Implementation Plan, the proposed qualifications will provide quarry workers with a clear career and educational pathway. AQA is also represented on the MITO board of directors.
The right aggregate in the right place Much quality aggregate material is used sub-optimally because risk aversion leads to over specification of aggregates, particularly in low traffic density roads. To ensure the optimum use of the wide range of quarried aggregates and in a bid to reduce both costs and wastage the AQA, in conjunction with other participants, has managed to influence researchers and Government to focus contestable funding on new testing tools that better categorise aggregates. Funding includes a major project examining the use of recycled materials in conjunction with the University of Auckland and Green Vision Recycling, with a view to preparing specifications that can be adopted by councils and other stakeholders. The New Zealand Transport Agency (NZTA) has formed
multiple working groups to review pavement type specifications dealing with surfacing and basecourse aggregates, stabilisation, earthworks, statistical control (acceptance) of basecourse testing. Progress has been slow but steady and includes examining new testing protocols and whether they are appropriate to New Zealand aggregates. As well, consideration is being given to updating specifications for M/4 basecourses material and the possible introduction of statistical quality control for the production of key NZTA specifications. AQA, Roading NZ (now CCNZ), and the Civil Engineering Testing Association of NZ have almost completed a review of the standard NZS 4407 Methods of Sampling and Test Roading Aggregates. The AQA has also committed to co-funding and joint review of NZS 3121 Specification for Water and Aggregate for Concrete. The AQA has undertaken, jointly with NZTA, a clean-up of the RAMM (Road Assessment and Maintenance Management System) database. The database had a considerable amount of historical information regarding aggregate source that was either incorrect or garbled. The clean-up will eventually enable more accurate identification of aggregate performance based on in-service performance, over and above laboratory testing. Quarry identification is an allied initiative to the above in conjunction with NZTA, laboratories and contractors. The objective is to clearly state the physical origin of aggregates in conjunction with the supplier’s details, which will then be entered into the RAMM database by the successful contractor. CP
CONTRACTOR PERSPECTIVES 2015
Opportunities and challenges JONATHAN BHANA-THOMSON, CHIEF EXECUTIVE, NZ HEAVY HAULAGE ASSOCIATION
As the HHA enjoys its 50th anniversary, the sector looks forward to the future and reviews the challenges and opportunities on the horizon. with giving innovative transport operators in the heavy haulage sector the freedom to help meet their clients’ demands, will typify the immediate future for the sector. Specialist transport operators that move loads on overdimension or overweight permits face numerous extra regulatory requirements on top of the normal rules for the road transport sector, and in recent times there have been some good wins achieved by the industry. The opportunities ahead in the sector are driven by regulatory reform as well as continuing strength in servicing the sector. More and more we are seeing the efficiencies and benefits from prefabrication of components and transporting to site just in time for construction that is part of a worldwide trend.
BALANCING REGULATORY CONTROLS
Policy improvements Regulatory changes that are benefiting the sector include some common sense changes to the Road User Charges (RUC) regime that have come in this year. Two years ago the entire RUC regime was overhauled and the outcomes of the process were difficult to fully address until the actual rates were known. Inequities relating to the rates some types of transporters used in the heavy haulage sector were identified by the Association and changes to mitigate these outcomes came into force mid-year. Meanwhile, the other big policy achievement this year is around the enforcement of loads travelling on overweight permits. Critical words written on the permit stating that the permit was “null and void” if any conditions were breached, mean that operators if slightly overloaded but with other travel in compliance with all other requirements, potentially face fines up to $30,000 as they are treated as if they had no permit in the first place. The Heavy Haulage Association has been lobbying for many years for operators to be given “credit” for the weight that they have on their permit and their compliance otherwise in the calculation of these fines. Finally this year, changes to the Vehicle Dimension and Mass Rule have been agreed (to come into force early in 2015) that do away with the null and void effect, and set up a range of breaches with stated penalties that are more in line with the offence. I’m proud to say that without the influence of the Association, this opportunity could have been lost and the members of the heavy haulage industry would still be stuck with the status quo. Both these policy changes directly affect financial aspects of
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heavy haulage operators out on the road, and it’s pleasing to see these impacts as beneficial ones.
Looking forward We completed our first 50 years as an Association this year and as we look forward to the future there are some challenges, but also some opportunities on the horizon. The biggest one in the next 12 months is the reform of the Vehicle Dimension and Mass Rule. This Rule sets the parameters for all heavy vehicles on the network, but importantly for the heavy haulage sector, it specifies the conditions by which overdimension loads are transported as well as setting the framework by which overweight permits are issued. This Rule has been in force since 2002, and there have been no real opportunities since to get any major changes to the Rule except for minor tidy-ups. This Association sees this reform process as a way to promote industry initiatives that have come forward as ways to make the industry more efficient, and also to ensure that the safety of the industry is enhanced. Some of our recommendations are driven by the opportunities that new technologies have given such as using the internet to lodge and receive permit applications as well as publicly notifying the movement of large loads. Others are safety driven such as enhancing signage and lighting on pilot vehicles; while the interpretation of the Rule over the past dozen years has left a couple of gaps where more specific information would be useful, for example with a clear-cut determination about who is responsible for compliance with an issued permit. Standardisation of pilot training and experience criteria are also something that the Association wants better rigour around to ensure high standards within the sector.
Industry taking the lead Another area where the industry is leading by example is the development of Best Practice Guides, codes and other information that assists industry with complying with the regulatory environment. A number of years ago we developed a Road Design Specification for assisting roading engineers with designing new roads to be capable of being a nominated heavy haulage route. Lobbying to maintain these routes is one of the key roles for the Association, and is important for NZ Inc as without suitable routes, it would be impossible to transport overdimension and overweight loads around New Zealand.
It is our intention to update this with a range of different information that has come to light in recent times. There is a tension between having a roading environment that guides drivers and other users to travel at safe speeds and the requirements for a heavy haulage route. Generally we want to see unencumbered roads with as few restrictions as possible to transport loads as efficiently as possible â&#x20AC;&#x201C; most roading engineers these days wish to manage road use and users by installing wire rope barriers, roundabouts, traffic signals, medians and traffic islands which can be challenging to design suitably. However it must be said that where there has been good dialogue between designers and the Association the outcome is usually a reasonable compromise. Meanwhile the prospects for the industry are looking reasonable. Most reasonable size infrastructure projects
need the heavy haulage industry to provide equipment and materials (eg bridge beams and other prefabricated components) and there seems to be a reasonable pipeline of projects coming through. Other traditionally work-rich areas such as electricity generation, wind farms and the like appear to not be investing in development at this point so the focus will need to turn to other areas. The Christchurch rebuild will continue to provide work for the house relocation sector and the reconstruction of the central commercial zone will also generate opportunities. The prospects for the sector all-round appear to be positive but there may be some speed bumps along the way. The need for suitable and not heavy-handed regulation will continue to ensure that an environment that encourages safe and efficient transport of large loads will continue. CP
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Moving forward ROD AUTON, EXECUTIVE OFFICER, CRANE ASSOCIATION OF NEW ZEALAND
With the gains in technology comes responsibility for upgraded training as growth across the entire construction and infrastructure sector sees a huge demand for cranes across the whole industry. OVER THE PAST quarter of a century, the economy has changed
from being one of the most regulated in the OECD to one of the least regulated. With average growth in the economy of 2.7 percent projected to be 3.6 percent by March 2015, New Zealand is experiencing a growth driven by the Canterbury rebuild and a recovery in domestic demand. On the back of this growth, the next 10 years should see an increase in infrastructure and commercial and residential building. The Canterbury rebuild and Auckland housing shortage will be the key drivers of this. Growing business confidence has seen growth across the entire construction and infrastructure sector and this has seen huge demand for cranes across the whole industry. A trend for the past couple of years has been the increased demand for quality crane operators and riggers; this has seen a number of Kiwis return from overseas, and the ITO in conjunction with the Association is working hard on recognition of prior learning to facilitate competent operators back into the New Zealand workforce. The pressure on this has heightened due to new detection and enforcement measures introduced by WorkSafe NZ.
Advances in crane technology Crane technology is advancing at the same rate that computerisation is, but market adaptations for use in specific countries means that there are variations internationally for the same models of cranes. In countries with large population bases and intensive utilisation of infrastructure, crane setup has become an issue as regulatory authorities are more concerned about the blocking of public roads to facilitate the setup of cranes. This is where the all-terrain crane has advantages over its counterparts as it can be quickly assembled and is capable of working in confined spaces. In Japan, Tadano has resolved this issue with hydraulic telescoping luffing jibs (HTLJ). These have a self-mounting system which saves time and space. Lifting capacity and boom length has always been a demand of crane users. To meet this demand Liebherr has developed a variable crane support system (VarioBase) that reduces the risk of accidents caused by the incorrect use of outriggers. The system works by using a load moment limiter to calculate
CONTRACTOR PERSPECTIVES 2015
available capacity on each outrigger. When buying cranes, the cost of ownership is an influencing factor for customers. For most, after purchasing a crane, many have to be modified to comply with the individual country’s regulations. Terex has designed its Explorer models with worldwide regulations in mind. Variables such as axle load spacing, overhang and height have already been taken into account. Crane manufacturers are extending the limits of cranes through technology and design by increasing capacity, extending the length of booms, reducing weight, introduction of hybrid engine packages, wireless multi-sensor load indicators, wireless antitwo block systems, and interlocking telescopic boom systems. With the gains in technology also comes the responsibility of the operator to remain current and training systems are catching up with simulators being utilised overseas and manufacturers offering training packages to the buyers of the cranes.
Moving forward We are in the final stages of the rewrite of our Crane Safety Manual. This has been almost two years in the making. The manual is designed for the crane operator with simple, easy to understand language and material. Industry, trainers and trainees all use it as their prime reference for crane operations. Two of the most critical pieces of legislation for our industry are the VDAM Rule and the H&S in Employment Act, which we are now involved in the review and rewrite of. The implications of these two pieces of legislation reflect critical areas of compliance. The H&S legislation will impact on all industries particularly those in high risk roles, for which there is now a “High Hazards” section of WorkSafe NZ, which again is a new approach. The review of the VDAM Rule has an opportunity to segregate cranes from the commercial road fleet for the purposes of compliance. This gives the Association an opportunity to show leadership, and areas that we are looking at are: • The reintroduction of Crane Weight Certificates will provide an element of certainty about crane mass and weight and potentially reduce roadside weighing, increase confidence for higher bridge weights (due to certainty of load), potentially remove the requirement for permits for cranes up to 50 tonnes, and introduce compliance incentives.
With the gains in technology also comes the responsibility of the operator to remain current and training systems are catching up with simulators being utilised overseas and manufacturers offering training packages to the buyers of the cranes.
• Changing of the rule around indivisible loads to facilitate the carriage of crane components and reduce the number of vehicles on the road; • Aligning manuals and other publications with the VDAM, like the Overweight Permit Manual. Currently we have crane operators doing initial unit standards training through the Industry Training Organisation and qualifying as a crane operator and then gaining practical experience on the job. Companies have had to keep records of training for compliance purposes. We have proposed a new overarching licence system for operators, offering statuses as probationary, under supervision and full operation, renewable every few years. This programme has gained “tentative” support from WorkSafe NZ. The timeframe is yet to be determined, but this is an exciting opportunity for the industry and the Association to lift the standard once more. The crane sector is a component of the construction sector and both are very much aligned as indicators for the economy. The past 12 months has been one of growth after a long period of stasis and the industry looks to be moving into a time of plenty. CP
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CONTRACTOR PERSPECTIVES 2015
Gaining momentum ROB GAIMSTER, NZ READY MIXED CONCRETE ASSOCIATION
The concrete and wider construction market has cause for optimism and a nationwide increase in ready mixed concrete volumes has helped alleviate much of the pressure that had built up over the past five years. GUIDED BY ENCOURAGING trends over the past year or so, along with recent high level government forecasts of stable shortterm growth, 2015 looks set to provide a positive operating environment for the construction sector. From a concrete industry perspective, although 2015 will see preparations ramp-up for a changing cement supply landscape in New Zealand along with updated regulations that require a degree of adjustment, the generally positive outlook for the wider construction sector will have a flow-on effect that offsets the difficulties of recent years and creates opportunities.
Setting the scene in 2014
commentators have expressed mostly positive outlooks for 2015. Although new residential dwelling consent data has been described as “patchy”, in general terms the residential sector is showing a strong recovery. Similarly, commercial building investment looks to remain healthy despite recent hikes in the official cash rate. Concerns around the existing building stock’s seismic resilience also appear to have waned as understanding of requirements grows. Civil construction will be driven by a number of major roading projects in the main centres and beyond, including the Christchurch Motorways Project, Wellington’s Northern Corridor and the completion of the Western Ring Route in Auckland.
When attempting to gain some sort of perspective on the year ahead it goes without saying that the previous 12 months offer the most valuable indications. In many respects the 2014 business climate was similar to that of 2013. Memories of the world’s recent economic woes lingered, the Canterbury rebuild had only just started to emerge out of the ground, while a high New Zealand dollar and declining ready mixed concrete production in some regions were felt to a degree. However, if the situation had previously been described as “subdued”, then it is reasonably safe to now start using more positive terms. The concrete and wider construction market has recently given us cause for optimism. The general air of growing confidence stems from the upwards trend in the main construction sector indicators. Consents issued and work put-in-place across residential and non-residential areas both demonstrated promising trajectories. A nationwide increase in ready mixed concrete volumes has helped alleviate much of the pressure that had built up over the past five years. Auckland and Canterbury in particular are enjoying very encouraging levels of concrete production. In Auckland, the Waterview tunnels are indicative of the construction activity across our biggest city, while the 900m3 concrete pour in March at The Terrace project in the Christchurch CBD is an excellent example of the post-earthquake rebuild gathering pace in 2014.
National construction pipeline report
Demonstrating drive in 2015
Over recent months economic and construction industry
Over the past several years the cement supply market in New
CONTRACTOR PERSPECTIVES 2015
One of the most explicit predictions that 2015, and immediately beyond, will yield positive dividends for the construction sector is the recently updated National Construction Pipeline from the New Zealand Building and Construction Productivity Partnership – http://buildingvalue.co.nz. The report draws on updated data from Statistics NZ, projections by Pacifecon NZ based on their comprehensive database of non-residential building projects, and forecasts by BRANZ covering both residential and non-residential building. One of the report’s key findings is that construction activity is forecast to grow across the country, with a minimum 10 percent increase expected every year to 2017, peaking in 2016 (2015 in Canterbury). The report highlights that this growth is principally driven by Auckland residential housing demand and the Canterbury rebuild, although growth in the latter is predicted to be lower than previously forecast.
Developments and opportunities in 2015 In 2015 the wider concrete industry looks set to enjoy increased production in most regions, as well as take advantage of emerging opportunities to grow infrastructure and residential market share. There will also be some interesting developments around cement supply and the update of several key industry standards.
The concrete and wider construction market has recently given us cause for optimism. The general air of growing confidence stems from the upwards trend in the main construction sector indicators. changes that follow-on from the Canterbury Earthquakes Royal Commission’s recommendations.
Zealand has changed somewhat as product from other than traditional sources has become more common. This trend is set to continue in 2015 with Holcim (New Zealand) recently announcing it was moving to a business strategy of importing and distributing bulk cement for supply, and that this would mean a move out of manufacturing. The company has all the final approvals to go ahead with its investment of more than $100 million to build two 30,000 tonne import terminals, one in Timaru and one in Auckland (Waitemata). The timeframe for having both new terminals operational is planned for the second half of 2016. The transition to imported cement will replace local production at the company’s Westport cement plant, which will close once the two import terminals are fully operational.
Updated regulations Updated versions of key concrete related standards will come online during 2015. These will ensure the continued use of concrete and concrete products with confidence. NZS 3122 Specification for Portland and blended cements (General and special purpose) will be amended to focus on sampling and testing for all cement used here, while NZS 3101 Concrete structures standard will be amended to incorporate
As mentioned above, the optimistic forecasts for construction over 2015 are built to a large extent on infrastructure expenditure (specifically roading), and the urgent need for housing in Auckland. Both these areas of demand offer an opportunity to utilise the inherent benefits of concrete and in turn grow market share. The Roads of National Significance, more so those utilising Public Private Partnerships (PPPs), are ideally suited for decision makers to embrace innovative and long-lasting concrete-based roading techniques that, as confirmed by CCANZ commissioned Infometric’s analysis, offer cost savings of around 25 percent over a 30-year service life compared to asphalt. Current social trends (ageing population) and economic conditions (high property prices and a scarcity of land for development) are leading us towards more sustainable and affordable medium density multi-storey developments in our cities. This places a premium on appropriate material selection to achieve optimum fire resistance and sound attenuation, both areas where concrete will have a role to play.
2016 and beyond Although the boom and bust nature of the construction sector can be unsettling, the upturn currently being experienced, and which is predicted to continue for several years, is most welcome. However, if those within the construction sector and their clients are able to utilise the “good times” to develop long-term strategies that aid planning and coordination around project scheduling and skills/capital investment, then perhaps the peaks and troughs of the boom-bust cycle will be less pronounced to enable sustainable growth over the long-term. CP
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CONTRACTOR PERSPECTIVES 2015
Unreasonable contract conditions KIERAN SHAW, CHIEF EXECUTIVE, ASSOCIATION OF CONSULTING ENGINEERS NEW ZEALAND
Constraints from changes to terms of engagement, or imposition of new and prohibitive contract terms and conditions by clients is a trend with inappropriate risk and liability. IT IS APPARENT to ACENZ members and many other providers in the construction industry that the 2014 year was challenged and productivity constrained by too many unnecessary procurement and contractual issues. One of the most frequent and frustrating of these industry constraints has been identified as unacceptable changes to current terms of engagement, or imposition of new and prohibitive contract terms and conditions by clients. This trend has often led to inappropriate allocation of risk and liability to the service provider without a clear client understanding of the legal, commercial and insurance consequences of unreasonable contract conditions. Many of our ACENZ priorities and activities in 2014 were focused on re-negotiation of adverse contract or certification content, and ongoing advocacy for defined, reasonable and uniform documentation across all industry sectors. That goal fundamentally will require better informed clients. Industry bodies recognise that there has always been some risk-averse behaviour in the public sector, but a fear of being exposed to any element of risk has been exponentially increased in the wake of the Canterbury earthquake events. One can perhaps sympathise with that positioning, particularly for pertinent Building Consent Authority (BCA) activities. Unfortunately a new environment of overreaction has resulted in prohibitive changes to conditions of engagement and certification processes; that reflex often highlights the lack of understanding on the part of many clients relevant to matters of risk, liability and insurance. It is our aspiration for the new year and beyond that better procurement processes will be developed through encouraging associated consultation, understanding and collaboration with clients involved in all sizes and types of projects, and that this endeavour will promote a culture of all parties seeking consistently robust and productive service engagement mechanisms. Achieving that objective will require early commitment to a mutually agreed scope of work, to the allocation of risk, and to fair and reasonable terms of engagement. Such outcomes will ultimately serve all parties to a contract, and contribute to productivity and healthy market competition in the wider industry as a result of good practice and sustainable relationships. Let me explain why clients should use standard conditions of contract for professional consultants. Consultants contract to the client and that commitment includes accepting liability for negligent acts on their own part. However, in an attempt to seek insulation from other risks often outside the consultant’s control, a client may attempt to transfer
CONTRACTOR PERSPECTIVES 2015
unacceptable (and uninsurable) risk to the consultant through onerous contract conditions. This course of action is not in the client’s best interests. Examples of onerous conditions are: • Clauses requiring the consultant to indemnify the client against any act, error or omission on the part of the consultant. (This does not mean that the act, error or omission is necessarily a negligent one.) • Clauses requiring the completed works to be “fit for purpose”. (Apart from being impossible for the engineer/designer to effect, such a contract would again not require evidence of negligence for the consultant to be held liable.) • Clauses requiring a collateral warranty, such as warranties to the principal where the consultant is engaged by the contractor (eg, in a design-build project). These can create an obligation between consultant and a third party, often creating liabilities to the third party greater than to the client. (In some cases, these can effectively require the consultant to guarantee the work of a third party, such as a contractor.) Such clauses appear to give the client added protection. The reality is that the “protection” may not be real, and it will not be sustainable over time. Most professional indemnity (PI) insurance providers will not cover any of the above conditions and the consultant may not be aware that they have compromised their professional indemnity insurance by signing that contract. The client imposing such conditions has therefore also potentially negated their opportunity for financial redress if something goes wrong. Where a consultant accepts a contract with such conditions a number of risks can arise for the client: 1. The consultant may be unaware of the risks and may not have the assets or insurance to back them up. For example, PI insurance policies may not respond where contractual obligations exceed Common Law requirements relating to negligence. It is unrealistic therefore, for a client to rely on a consultant’s liability and insurance to cover other risks. 2. The consultant faces a series of claims and consequently: • Defends the claim and makes counter claims to the extent that the project and client suffer; and/or • Raises fees on the next job; and/or • Provides conservative advice and programmes which may cost the client more overall; • The consultant may operate through a shell company with limited PI insurance cover, and liquidate in the event of a significant claim. In that instance there is limited or no recourse for financial redress. A recommended risk management strategy for clients is to:
• Appoint a professional consultant with a good track record and relevant capabilities, for a fee that does not encourage shortcuts (qualification-based selection); • Adopt contract conditions that do not impose obligations greater than reasonable skill and care of a competent professional experienced in providing similar services; • Require the consultant to have PI insurance matching the limit of liability under contract (set at about five times the fee); • Budget for a contingency sum for construction work to cover the inevitable minor changes and additions that do not arise from negligence but which are necessary to bring about a complete job; • Risk and liability should be assigned to the party that has the ability to manage or control that risk and they should accept and embrace that risk; • Use a professional firm that is a member of an association that subscribes to a code of ethics and that monitors appropriate member firm insurance provisions and business performance. It is in the client’s interest to adopt standard conditions of contract that are well proven over decades of experience and legal testing in many circumstances. They balance the risks in a well understood and time proven manner to give economic and sustainable outcomes. Consultants are frequently presented with non-standard contract conditions prepared by legal advisors acting as advocates for their clients. Reviewing, amending, and re-negotiating such contracts inevitably adds costs for both parties, with little if any gain, as the risks may not be insurable, and the client not protected. A good agreement gives a good outcome. It is an industry frustration that a change of client staff member or legal advisor sometimes causes misinformed and unacceptable changes to acceptable contract forms already in use. The relevant industry standard contract form for professional services known as CCCS (Conditions of Contract for Consulting Services) was originally developed in collaboration with IPENZ, Transit NZ (now NZTA), Ingenium (IPWEA), Department of Building & Housing (MBIE) and a number of government bodies and local authorities including all of the then Auckland city councils. CCCS and the companion Short-Form Agreement continue to be regularly reviewed with stakeholders and these contracts are recommended and used by nearly all government agencies, local authorities and Building Consent Authorities in addition to most private sector clients. These types of collaborative contracts have been proven as robust and fair to all parties across decades of use, and are updated on a regular basis to meet changing client, industry and legislative requirements. In using industry standard conditions of engagement, clients and others can be reasonably assured of defined outcomes in the unlikely event something untoward happens. Why clients should limit the liability of their consulting professional. Clients engage consultants to provide engineering and related professional services. Based on their advice, clients can invest in an asset, the value of which may be 10 to 1000 times greater than the consultant’s fee. In the unlikely event that the professional consultant is negligent in that advice, the cost of rectifying the error may be several times greater than the original fee. This could constitute a risk to the client. An initial reaction by some clients is to attempt to transfer all the risk to the consultant by requiring excessively high or even unlimited liability. This is not the safest, nor the most cost effective way of managing such risk.
Appropriate methods to mitigate risk include: • Preparing a brief with the scope of work and services well defined and best finalised together with the consultant through early engagement; • Making consultant selections competitively, but based primarily on qualifications and experience rather than price; • When appropriate, arranging for peer reviews of the consultant’s work; • Setting a commercially viable limit of liability; • Requiring the consultant to maintain PI insurance to match the agreed limit of liability; • Assigning elements of risk where they can be best managed – sometimes that will be with the client or contractor. In order to maintain necessary skills, consultants need to operate businesses or partnerships that are commercially viable. If there is no reasonable limit on liability, professional consultants have a number of unsatisfactory options, such as risking their business on the job through the potential liability being greater than their PI insurance and the value of their company. This usually means not offering some services or offering services with conditions. The “liability” of the consultant is only a safeguard for the client if it is backed up by PI insurance. PI premiums are expensive and increasing. Insurance providers worldwide are limiting the size and types of risk that they will cover. In some locations and for some services, PI cover is no longer available. Insurers often argue the professional was not liable or not covered for that action. A commercial balance is required to provide clients with security and consultants with viability, backed by insurance. The general rule of thumb that has developed over time, internationally, is that the limit of liability should be about three to five times the fee but be reasonable in relation to the fee. This level: • has substance in the event of errors made by the consultant; • covers virtually all legitimate claims that arise; • is commercially sensible for both the client and consultant. Even so, this level of cover is demanding in terms of cost and liability upon the consulting firm. In many industries (eg, IT), damages are limited to the value of goods or services only and the client is therefore much more exposed with very limited financial redress. To assist clients in gauging risk for specific professional services works ACENZ has developed a ‘Risk Assessment Tool’ that is in use by some local authorities and client groups; this guide is available upon request. We at ACENZ believe that the 2015 year will create more of the same challenges for the industry in striving to establish consistent and uniform terms of engagement and associated processes that are acceptable to engage the services of our professionals. The other forseeable challenge will be in continuing to push for pertinent public sector practices (within both central and local government sectors) that perform in a coherent and uniform manner and employ practical processes that are ‘fair and reasonable’ to both industry and, ultimately, the public. I can say surely, that 2015 will be at least as (and likely more) busy than the past hectic year in all facets of our business. Industry resources may well be stretched beyond capacity as they already are in some disciplines such as structural and geotechnical. However, I also believe our industry is now better placed to improve its productivity and performance than any time in the past decade, and it is significantly more focused on ‘public good’ in comprehensive terms of health, safety and quality works. CP
CONTRACTOR PERSPECTIVES 2015
The view from across the Tasman ROBERT ROW, CHIEF EXECUTIVE, CIVIL CONTRACTORS FEDERATION, AUSTRALIA
Reflections from our closest neighbour where opportunities for mid-tier and smaller contractors could be better. FOR THOSE WHO are aware of the Australian market, you would
know that 2014 has been a year of ups and downs for the civil construction industry. While some states and territories across the country are tracking well and have a solid pipeline of work, others are struggling and contractors are hurting. The states that are especially stressed have been largely impacted by the downturn in construction activity within the resources sector as the sector moves from construction to production. Some states and territories have also been impacted by their governmentâ&#x20AC;&#x2122;s budgetary priorities, as many move to return their balance sheets to surplus. When I speak with contractors across the country, some are pleased with how the industry is tracking and others are very concerned and our role as the peak industry body is to address their concerns and ensure that we balance the needs of all of our members. One of the clearest messages that I receive around the country is that our members would like to see more, smaller projects let to market. While the great majority of our members believe there will always be a place for the mega project and the major tier one contractors, they would like to see an equitable spread of
CONTRACTOR PERSPECTIVES 2015
projects across all levels of the industry. This is particularly so in those states where work is scarce. Often, when major infrastructure projects are procured by governments, they are procured as one contract despite the fact that is possible to consider dividing them into smaller components. The single-contract strategy may often be chosen in the belief that it will save money through procurement efficiencies and may also be chosen due to the capacity of procuring departments to manage contracts. CCF has long argued that unbundling appropriate projects into a number of smaller contracts, allows broader participation by contractors; building industry capacity and sustainability and leading to greater value for money for governments, both in the short and long term, by fostering a vibrant, competitive, innovative contracting market. It may also be able to keep the industry alive during times of fiscal restraint as smaller packages mean more opportunity for more contractors. When projects are very large or complex, few contractors have the capacity and capability to bid and CCF believes the trend to procuring mega projects is not in the interests of industry
sustainability or value for money. A recent report by the Australian Productivity Commission, the ‘Final Report into Public Infrastructure’, endorsed the view that governments need to further explore opportunities to encourage more competition, and thereby receive greater value for money, through unbundling. In the Final Report, the Australian Productivity Commission recommended: “For larger and more complex projects, government clients should pre-test the market to gain insights into possible savings from packaging the project into smaller components, reducing the level of risk borne by any one contractor, and promoting greater competition by relatively smaller construction companies.” (Recommendation 12.8, Volume 2, page 478.) CCF believes there are several adverse impacts upon SMEs and taxpayers, generally arising from combining projects into larger packages: reduced competition, which ultimately results in a higher cost of construction; and increased labour costs, which ultimately flow to other industry participants. Our members would often argue that mid-tier contractors are particularly affected by bundling of major projects. These contractors have invested in safety, environmental and quality processes, and in workforce training with the intention of demonstrating their capability to manage and deliver projects. It is because of this that they are often unable to compete on price with smaller companies and sole operators when working as a subcontractor on mega projects. The long-term effect of lack of opportunity for mid-tier
contractors, and smaller contractors who are investing in the processes that will enable them to build their businesses, is a “hollowing out” of the civil construction industry, benefiting only very large and possibly very small companies. There are some concerns across the construction industry in relation to the industrial relations environment and it is the belief of CCF that governments can use their procurement policies to drive reform and penalties if unlawful conduct should arise. Larger project packages may be more likely to create an environment conducive to adverse industrial activity and this activity may have a far greater impact on the construction industry than would be the case on a smaller project. Overall this is a very complex issue with multiple factors that influence how and why certain procurement practices are chosen. While we can see the clear benefits that are likely to arise from breaking projects into smaller package sizes, we understand that it is not always possible. As the industry body for civil construction in Australia, CCF will continue to advocate on behalf of its members to governments across the country to ensure that their procurement practices not only benefit contractors, but so that they also provide value to taxpayers. While 2015 projections for some states and territories look grim, we hope that with a number of state elections looming things will turn around for the sector, especially in those areas that are most heavily affected. We will continue to drive our advocacy agenda across the country and look forward to supporting our members. CP
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CONTRACTOR PERSPECTIVES 2015
Reviewing the construction boom DR GANESH NANA, CHIEF ECONOMIST, BUSINESS AND ECONOMIST RESEARCH (BERL)
A review of current economy trends against a backdrop of the expansion in construction leads to some very interesting observations. THERE ARE TWO QUESTIONS that come to mind in considering the 2014 construction boom that is driving our economic growth. First, why is there an absence of rampant inflation that usually (from past experiences) accompanies such booms? Second, just how real is this boom in terms of improving the nation’s infrastructure – or is it better described as a catch-up of work postponed from earlier times? As I’m a numbers man (it comes from my love of cricket), a quick tour of the data reveals some interesting insights. Employment data provides strong and solid evidence of construction sector growth. The 3400 additional jobs over the past year in the heavy and civil engineering construction subsector imply an expansion of close to 15 percent. Alternatively, the number of engineering professionals employed grew 16 percent, while construction and mining labourers expanded 22 percent over the year. In anyone’s world that is strong growth. But why is such strong growth not showing through in construction sector price indicators? Normally (if anything after 2008 can ever be termed normal again) one would be expecting widespread wage and price inflation in the context of such extreme rates of expansion. But Statistics NZ recorded input prices (excluding wages) for the heavy and civil engineering construction sector at only 0.8 percent up on a year ago. Labour costs, as measured by the broad construction sector wage index, indicated a 2.4 percent rise over the past year. Consequently, the overall price index for the outputs of the heavy and civil sector grew by two percent over the past year. Some might petulantly point to these numbers being above the economy-wide averages (for example, labour costs up 1.6 percent and output prices down one percent). But School Certificate arithmetic tells us that it is the very nature of an average figure that there must be some sectors recording aboveaverage figures. Indeed, these numbers are further evidence that the construction sector is indeed driving the economy. That is, those sectors driving the economy will inevitably record above-average figures for both growth and inflation. However, even the price rises for the sector (or any of its components) cannot, by any means, be described as evidence of rampant inflation. I would suggest that our notion (or model) of demand-led inflation may be a tad out-of-date in the post-GFC world. Given our exposure as a trading nation to external influences, the
CONTRACTOR PERSPECTIVES 2015
source of inflationary pressures is predominantly from abroad. With the global economy continuing to struggle to kick-start some form of convincingly sustainable economic expansion, the thought of inflationary pressures from abroad is, frankly, laughable. The recent dramatic slide in the world price of oil is a further reflection of the lack of generalised inflation across the economic landscape. Consequently, the sooner we modify our outdated expectation of demand-led inflation, the sooner we might be able to consider (and plan for) a prolonged period of relatively low interest rates. This in turn would bode well for decisions as to a sustained period of investment in infrastructure and other long-lived assets that are required for the future of NZ Inc. This conveniently turns me to my second question – just how real is this boom, or is it essentially catch-up? Again, the numbers are illuminating. Yes, if we focus on the latest year then the expansion is impressive. But viewed over the longer-haul, there becomes a nagging feeling of déjà vu. Indeed, the previously noted surge in employment over the past year is not so exciting when one notes that employment in the sector now is still only modestly above that of the early-2000s. This suggests more of a catch-up, rather than true expansion. Compared to GDP, the recent history of the country’s investment spending has been incredibly volatile. FIGURE 1
Excluding housing construction, Figure 1 illustrates investment spending plummeting to a low of 13 percent of GDP after the recession of the early-1990s. This measure then gradually rose to a peak of 17 percent just before the onset of the 2007/08 global financial crisis. Viewed from this perspective, the construction sector surge of the last couple of years is still in catch-up mode, struggling to get back to the medium-term average of around 15 percent of GDP. Extracting the non-building construction numbers from this, Figure 2 provides more insight. While the quantum spent on investing in plant and machinery is flat-to-declining when measured as a proportion of GDP, investment spending on non-
building construction (primarily heavy and civil engineering construction) has exhibited a continuing increase over the past 20 years. Underlying this divergence is movement in prices. Our (implicit) policy of a maintaining a high NZ$ exchange rate to ward off inflation has resulted in imported plant and machinery becoming increasingly cheaper. Indeed, the price index here suggests a nearly 40 percent decline in prices over the past 20 years. This has allowed more of the nation’s investment budget to be allocated across to non-building construction. That is, the non-building construction sector prospers as businesses take advantage of cheaper plant and machinery renewals and upgrades. But, note the NZ Inc budget for investment (as per Figure 1) remains essentially a static slice of the overall economic pie. There remains a struggle to catch up and there is little evidence that there is a step-change increase in the overall NZ Inc effort to invest for the future. Yes, there are undoubtedly significant improvements in roading and communications infrastructure happening. But, the argument to lift the nation’s propensity to spend on investment infrastructure for tomorrow remains absent. This is best reflected in the recurring arguments as to affordability of particular projects, whether they be a cricket ground flyover, or a train line around a CBD. The nation’s mindset continues, as with the original Auckland Harbour Bridge, to search for and adopt cheap options – and then hope we don’t have to resort to clip-on solutions later down the track. CP
CONTRACTOR PERSPECTIVES 2015
An era of automation MIKE MILNE, MANAGING DIRECTOR, SYNERGY POSITIONING SYSTEMS
A new digital era of connected equipment and automation technology is transforming the construction industry. ON A GLOBAL SCALE, automation and productivity improvement
are increasingly seen as the key ways to bridge the gap between construction demand and available resource. And while we’ve spent the past five to 10 years educating businesses on the benefits of automating individual machinery to improve efficiency, what the immediate future holds in terms of automation goes far beyond that.
The digital job site Rather than concentrate on individual machinery, we now have the ability through integrated, intuitive software to automate the entire job site. We have the technology to optimise the design of any project, right down to basic logistics. The big disconnect for any entity is between the job design and the actual building work: this is where extra costs transpire, through unexpected downtime, shifts in available resource and rework. But instead of playing catch-up at the tail end of the project, this sort of software solution means construction companies can be ahead of the game from the very start. In planning out aspects of a project, an entity might ask: “If we run our trucks in this configuration, or if we complete our earthworks in this way, what’s the outcome?” The software can then be tasked with running 10, 20, 30 scenarios and optimising the most efficient pattern of work. Translate the ability to complete such assessment work before beginning a $300 million project. Essentially we have now reached the stage where software can tell an entity: If you complete these tasks in this manner on these days, you will save $10 million in one year and require this many fewer machines on site. This sort of technology is incredibly powerful, as it enables the company in question to hold intricate knowledge of the precise level of resource they’ll need right at the start of bid. It is also one part of a wider suite of automation solutions. Contractors can now design the job itself, design how the job is scheduled, monitor and measure the job in real time as it progresses by setting tasks for machines in line with the schedule and, as before, utilise machine control to enable more productive and accurate ground work.
Collaboration and a shift in thinking These technologies aren’t just over the horizon; they’re here now. There is a lot happening within this space, but it remains
CONTRACTOR PERSPECTIVES 2015
This sort of technology is incredibly powerful, as it enables the company in question to hold intricate knowledge of the precise level of resource they’ll need right at the start of bid. It is also one part of a wider suite of automation solutions.
prudent to note that this new way of working has been designed for an industry which is very traditional and which places great stock in hands-on experience. By getting involved in the early stages with consultancy work in the field we have learnt a large amount which we’re able to disseminate to clients. We’re creating a ‘Centre of Excellence’ around automation and quite simply, the more exposed we are at the front end, the more we can refine these technologies for clients and start helping contractors solve problems with them. A collaborative approach is required around automation. We already have some very successful partnerships and collaborations in place, achieved in a number of different ways, such as consultancy leasing. This has proven an effective way for a contractor who is particularly good at what they do, to up-skill in another area by utilising the right technology and advice.
The year ahead This country enjoys a reputation as an ‘incubator’ market with a keen appetite for innovation. In this respect 2015 bodes well. The continued demand for new infrastructure here will see an increase in entities utilising digital technologies and connected equipment the likes of which we are only just starting to realise. With the scale and complexity of key projects such as the Christchurch rebuild progressing consistently, along with the addition of new RoNS projects in the Wellington region and increased urban infrastructure planned through the CountiesManukau and Waikato regions among others, 2015 will see an increased uptake in automation technologies for a wide variety of market players. The gap is closing. CP
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Outlook for recruitment JASON WALKER, MANAGING DIRECTOR, HAY RECRUITMENT SPECIALISTS
As the demand for structural, water and geotechnical engineers and all levels of drafters is driven by pubic sector infrastructure projects, wage pressure will increase and competition for talent will heat up. JOBS GROWTH IN our construction industry is gathering pace as
several large infrastructure developments have commenced, or are about to get underway. Construction momentum is building across the country due to unprecedented demand, and this strong growth is expected to continue in 2015. Improving business confidence has led to an increase in building approvals and forward workload, but more importantly there has been an increase in the value of work being carried out in both residential and non-residential sectors. There is a shortage of candidates in New Zealand across all aspects of construction. New jobs are being created as a result of the increase in workload throughout the civil sector. Civil employers, especially smaller contractors, are still favouring permanent recruitment. Further demand exists within the industry due to a movement of candidates between companies and a pick up in the housing sector. Some large infrastructure developments have commenced or are about to get underway, which is stretching human resources further. We are also experiencing a great deal of optimism surrounding pending major commercial developments in Auckland and Christchurch.
The queen city Auckland is leading the way as residential construction is needed to ease the current housing shortage and a lot of land is being developed as the city spreads outwards. With tower cranes again dotting the Auckland skyline and numerous high value developments either underway or in planning, commercial construction is also growing strongly. Civil construction is more buoyant due to government investment in the Roads of National Significance programme. With the Waterview Connection project in full swing, improvements are being made across the Auckland State Highway network and land development subdivision building work is ongoing. The city’s increase in large civil roading projects has led to strong demand for tertiary qualified project engineers and civil managers with roading and drainage experience. There is also a significant shortage of skilled machine operators to carry out the work.
CONTRACTOR PERSPECTIVES 2015
In addition, residential demand for project managers is expected to rival that of quantity surveyors as Auckland’s housing market continues to grow. Civil companies are now struggling to source qualified project managers with experience in roading and subdivisions. There has been a noticeable increase in demand for civil engineers in Auckland over the past three months and we expect this to continue. Demand is particularly high for candidates with experience running multiple small to medium sized projects in land development, subdivision, stormwater drainage and road building. There are also several large capital works projects within the water sector about to start. Design consultancy experience within excavation, tunnelling and piping will be required.
Christchurch and Wellington Demand for skilled construction professionals is also growing in Christchurch where there is currently a significant shortage of candidates with New Zealand experience available. Intermediate candidates with four to eight years’ experience are the most challenging to find and are needed for commercial, residential and civil projects. Furthermore, there is a great deal of anticipation around the Wellington ‘Transmission Gully’ project. The housing boom is creating a need for residential specialists such as estimators and quantity surveyors and there is currently demand for both temporary and permanent roles in the industry. The land development sector needs civil designers and licensed cadastral surveyors as developers continue to push through new subdivision projects across Wellington and Christchurch. Transportation engineers with experience in design and management of highways, drainage and civil structures are in high demand due to two large infrastructure projects that are currently under construction in the Wellington region. In Christchurch demand continues for engineers with transport, drainage and utilities, and infrastructure design project management experience. With the on-going new build and seismic assessments for commercial buildings, design engineers are in especially high demand in Christchurch where there are still a large number of
Outlook for 2015 Salary expectations will rise over the coming year as skills shortages intensify. Hotspots of demand will continue to exist for intermediate quantity surveyors and project managers in the commercial sector and residential project managers. Meanwhile, within the engineering sector we expect to see more demand for structural, water and geotechnical engineers and all levels of drafters in response to earthquake and public sector infrastructure projects. The growing demand for talent is supported by findings in the 2014 Hays Global Skills Index, which revealed that wage pressure in New Zealand’s high-skill industries such as engineering and construction, is the main pressure point in the
local labour market. In fact, New Zealand was given a score of 10 – the highest of the 31 countries in the Index – for wage pressure in high-skill industries. As competition for talent heats up in the construction industry, the number of quality candidates is falling. Naturally, this is a cause for concern. New Zealand needs to take steps towards addressing the skills shortage. So what can be done? First, businesses need to partner with education authorities to create education systems that ensure that the country is producing graduates with the skills that closely align with what businesses need. Next, the New Zealand Government needs to work with business to ensure that labour regulations are developed with the direct aim of increasing the availability of workers with the required skills. Last but not least, government policy must draw a clear distinction between mass immigration and skilled migration to ensure organisations have access to the skilled workers they need. Tightness in the labour market is now leading to wage inflation within highly-skilled jobs in construction and engineering as businesses struggle to attract and retain the skills they need. Without action to address these skills mismatches, further wage pressure, and an increasing inability to staff key roles, will become more prevalent. CP
residential projects that need to be assessed, demolished and redesigned. This work is likely to keep engineers busy for the next few years. The building services market continues to grow as more buildings across the country are upgraded or have seismic assessments. This is keeping building services teams busy with fit-out and refurbishment work. Infrastructure projects in Wellington and Christchurch and ongoing new build work have resulted in strong demand for building services mechanical and electrical design engineers with intermediate to senior level design experience.
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Making hay: outlook for 2015 SAM MCCUTCHEON, SOLICITOR, KENSINGTON SWAN’S NATIONAL CONSTRUCTION LAW TEAM
A significant review of health and safety legislation with significantly increased obligations on directors and management of contractors and principals, along with new standard form construction contracts have shaped a new future for contractors.
THERE WAS MASSIVE growth and positive initiatives in the
construction and infrastructure industry in 2014 and as the National Government embarks on a third term what can we expect for the construction industry? It is clear that National’s focus on housing will continue. It will come as no surprise that New Zealand is facing a significant housing shortage and increasing the supply of housing will continue to be high on the Government’s priority list. We can expect the Government will continue to encourage housing accords with local councils and explore options to lower building costs by reducing tariffs. Contractors should expect to be busy because significant supporting infrastructure is required to meet this demand.
Health and safety will have an increased focus A significant review of health and safety legislation has been completed and changes to the current regulations are expected to be implemented part way through 2015. The new legislation will place significantly increased obligations on the directors and management of contractors and principals. Although this reform has been anticipated for some time, its full impact remains to be seen. With WorkSafe receiving an additional $30 million to strengthen enforcement and education, contractors should expect an increase in site inspections, notices and prosecutions over the coming year. Over the past three years the National Government has been committed to the Christchurch rebuild and we do not expect this to change over the coming term. We have recently seen a number of major projects get underway and the ground work on the city’s roads and infrastructure has been relentless. The peak of the rebuild is now expected to occur in 2016. Following the election result, National will consider it has the mandate to pass reforms to the Resource Management Act. It is likely that new matters will be added to the list of considerations. One relates to the built environment and is intended to provide for housing and other land use associated with population growth. Those involved in construction can expect to see a smoother path for new developments, resulting in increased activity and a reduction in lead time between the consent application and the start of the works.
CONTRACTOR PERSPECTIVES 2015
Retentions The practice of contractors using retentions as a form of working capital has become a major issue since the collapse of Mainzeal in early 2013. The Government has recognised that something needs to be done, but has been somewhat reluctant to interfere in what has essentially been an internal issue for the construction industry. However on September 9, 2014 the Building and Housing Minister, Dr Nick Smith, announced that changes were to be made through the Construction Contracts Amendment Bill. These changes are currently being drafted although early indications are that they will require retention monies to be held under a statutory trust and only applied for certain purposes. The Construction Contracts Amendment Bill is set to come up for its final reading early in 2015. There are a number of unknowns with the proposed approach and it will be interesting to see more details once the supplementary order paper is released. Some remaining challenges include: • Ensuring the scheme is applied in an efficient manner to regulate retention monies without adding cost to construction projects; • The procedures to effectively monitor and enforce the scheme; • The structure of any related penalties; • Ensuring there is widespread communication of the changes to the industry.
New standard form construction contracts Although the new suite of NZ Standard construction contracts was officially launched last year, 2014 marked the first full year of their use. The popularity of these new contracts has increased as the year has progressed and, as predicted, NZS 3910:2013 is proving a popular replacement for its predecessor. The new contracts were developed in line with industry consultation and include many amendments that were commonly being made to the general conditions. The new line of contracts also includes NZS 3916:2013 (design
Those involved in construction can expect to see a smoother path for new developments, resulting in increased activity and a reduction in lead time between the consent application and the start of the works. and construct), and NZS 3917:2013 (fixed term and maintenance).
Where to in 2015 The predicted industry growth is highlighted in the recently released second National Construction Pipeline report. This report forecasts the construction demand over the next six years so that the Government and those in the industry can prepare for future demands. Points include: • Forecast construction growth of 29 percent through to March 2017 ($35 billion of construction projects predicted during the year to March 2017); • $4.6 billion of civil projects were expected to have commenced in the year to March 2015 (compared to $5.4 billion of commercial projects over the same period); • Auckland is going to continue to lead future growth as it accounts for more than a third of all construction work over the next six years. The report provides an interesting perspective for everyone
involved in the construction industry and with specific breakdowns by type of construction work and industry it provides an interesting read. While 2014 was a good year to be involved in the construction industry, it is clear that we are entering a period of sustained growth and contractors will need to ensure they are well positioned to take advantage of this activity. We think the key points to address heading into 2015 include: • Ensuring comprehensive health and safety procedures and policies are implemented to ensure compliance with the revised health and safety laws; • Familiarise yourself with the new standard form construction contracts and update any standard form templates; • Develop procedures to ensure that any retention monies held comply with future legislation; • Assess the position of your business in the market, areas where it may be able to expand in 2015, and any skills or resources that will enable this expansion. CP
CONTRACTOR PERSPECTIVES 2015
Reflections from the road ROBERT JONES, CHIEF OPERATING OFFICER, NZ INFRASTRUCTURE, FULTON HOGAN
A review of how differently the UK is now approaching infrastructural funding and build, is a valuable lesson for our industry.
DURING A WHISTLE-STOP tour of the UK in November I was
struck by the UK’s highly evolved model for developing new infrastructure and believe there are some aspects of the overall approach we would do well to adopt in our own backyard here. Back in November it was my privilege to represent Fulton Hogan as part of a delegation organised by the New Zealand Council for Infrastructure Development (NZCID) and UK Trade & Investment. Over the four days we were hosted in London and Manchester where we were brought up to speed on the state of play of the UK’s infrastructure. Originally from the UK myself, it was great to head back over there with a fresh set of eyes after leaving the UK over 24 years ago and see for myself how our approaches to major nation and city building projects compare.
Ahead of the curve It was very apparent to me that authorities in the UK are increasingly approaching infrastructure with a ‘build it and they will come’ mentality. In New Zealand we often wait for the perfect economic conditions before acting, whereas the UK way is to view infrastructure as a vital catalyst for unlocking economic growth. Infrastructure is pegged as a growth-enabler for the economy, not vice versa. The Crossrail project being rolled out in London is a perfect example of this go-getting approach – 118 kilometres of eastto-west rail is being constructed in what is currently Europe’s biggest construction project. The total available funding is £14 billion for the job, which is a hefty purse, but expected economic benefits for Greater London are in the vicinity of £40 billion. Work began in 2009 and the full line will be open in 2019. Two hundred million people are forecast to use the new line annually, with fringe areas such as Heathrow and Docklands being unlocked. Total network
In New Zealand we often wait for the perfect economic conditions before acting, whereas the UK way is to view infrastructure as a vital catalyst for unlocking economic growth. Infrastructure is pegged as a growth-enabler for the economy, not vice versa
CONTRACTOR PERSPECTIVES 2015
capacity will rise by 10 percent. Auckland’s Central Rail Loop is technically complex and political, but Crossrail is certainly eyeopening for its scale.
Fertile ground for investors Projects like Crossrail are fantastic in principle, but who’s footing the bill? The answer is that the burden is shared. I was struck time and again during my trip by the funding model employed to pull off projects of enormous scale like Crossrail. In New Zealand there remains a significant deal of restraint and hesitation when the idea of private investment is tabled. The opposite is true in the UK, with the attraction of private investment being factored into projects at an early stage. Securing private investment is a key objective for many projects – not a reluctant second best. Crossrail is being made possible through partnerships between the public and private sectors, with £4.1 billion sourced from private enterprise. The UK also reaches out to foreign investors to deliver infrastructure upgrades. High Speed 2, a planned high speed rail development, will link the northern cities of Manchester, Sheffield and Leeds with Birmingham and London. Estimates have tentatively billed the project at £43 billion and the UK government is procuring foreign investment in order to get it over the line. In order to deliver despite the large price tag, the UK government has warmly received interest from China. Talks are still in progress and the project, set to begin in 2017, is headed to the start-line with the support of a seemingly strongly aligned set of local and central government agencies, and a passionate political champion in the Minister of State for Transport (Baroness Kramer), who plays the role of a sponsor, enabler and ‘Chief Unblocker’. With Fulton Hogan’s historical strengths in roading I was naturally interested in the framework of the roading industry in the UK. Interestingly, the Highways Agency – their equivalent of our NZTA – last year embarked on a journey to be a publicly-owned corporation with the rationale that it will make investment easier. There have been signs of late here of New Zealand warming to the idea of a UK funding model. The 2011 National Infrastructure Plan from the New Zealand Treasury requires the Government to consider procurement within a PPP model for all capital
projects greater than $25 million. Transmission Gully is a litmus test for this strategy and, as New Zealand’s first state highway to be built using the PPP model, it is more in-line with the UK’s modus operandi.
Opportunities and challenges on the home front Throughout my trip I was reminded of the enormous opportunity – and responsibility – we have in the country’s infrastructure sector to deliver some incredible projects for Kiwis. Auckland’s thrusting growth necessitates large-scale and creative infrastructure solutions. Easing the ever-increasing flows of people and freight will require the very best in roading design,
technology and construction, while getting the beautiful city of Christchurch back on its feet demands sensitive yet futureproofed design and execution. Put simply, we have got our work cut out for us. In fact, the unprecedented volume of forward work in New Zealand means we are facing a deficit of skills and talent. We need more engineers, project managers and estimators and machine operators to get the job done. Fulton Hogan has been pushing the envelope in this area, with recruitment drives spanning as far as Western Australia and the UK. As a sector we need the best and the brightest to make our mark in this oncein-a-generation burst of nation building which will define the way we live as Kiwis for 75-100 years to come. Bring on 2015! CP
CONTRACTOR PERSPECTIVES 2015
Better contracting design and planning STUART TUCKER, GENERAL MANAGER – CIVIL INFRASTRUCTURE, BECA
Balancing risk and reward in the tender phase of design-construct contracts: How to have a successful experience with your design consultant. I’VE SPENT ABOUT 20 years working in design-construct contracts of one form or another, mostly in the tender and early delivery phases of large infrastructure projects. While I’ve seen plenty of changes to how professional services are procured and delivered for this work, two aspects remain the subject of considerable debate: How much design is enough and how should that work be reimbursed; and what are the designer’s responsibilities in relation to the tender phase – specifically, how much responsibility should the designer carry for additional cost as the design is developed in the delivery phase? So how much design should we do? Tender design work is really about helping constructors identify and manage risk while they determine a price for undertaking the works. It seems to work best when tender teams: • Carefully review scope at the outset of the tender phase; • Identify those components where cost risk may be reduced by design, noting that not all elements require design input to successfully price; and • Prioritise components so that design effort is focused on elements with the greatest cost risk. Once priorities are agreed, budgets should be set by the constructor, balancing its desire to limit spend against the level of risk it is prepared to adopt. More design might provide greater certainty or even innovation but cuts into the time available for pricing. Less design time might mean more time for pricing, but greater variability in actual out-turn cost. There is universal agreement that once budgets are set, designers need to provide the agreed pricing deliverables in full and on time. Balancing these aspects introduces a degree of tension to the tender team – which can help drive performance when managed well. It’s critical that the people pricing the work have a thorough understanding of the risk profile adopted for the overall tender design and for each element – because the risk profile adopted will differ between projects and across individual elements within a project. In my experience, the best teams continually review progress and change course as new information demands. They can only do that effectively with a thorough understanding of the risk profile. Reimbursement of designers is a separate but related question. The industry has settled at reimbursing designers on a time and disbursement basis, usually at heavily discounted rates, with a top-up on winning. This approach is appropriate because:
CONTRACTOR PERSPECTIVES 2015
• A level of reimbursement is required to make tender design work viable for consultants, taking into account win rates and returns for combined tender and delivery phase work. • Much of the value in a developed design is created in the tender phase. This aspect is now recognised by some principals, who pay bidding teams for use of the intellectual property created by them in the bid phase. • The scope of design work is uncertain and usually changes considerably through the tender phase. And so the reimbursement model needs some flexibility. So when can I sue my designer and how much can I get? The topic of designer responsibility for tender phase work is usually considerably more vexed in my experience. Invariably, designers seek to limit their exposure, while constructors seek to maximise the responsibility of the designer if things go wrong. And at times things do go wrong. Not because designers are incompetent – it’s because tender phase design is
More design might provide greater certainty or even innovation but cuts into the time available for pricing. Less design time might mean more time for pricing, but greater variability in actual out-turn cost. There is universal agreement that once budgets are set, designers need to provide the agreed pricing deliverables in full and on time. demanding. The work is fast paced and tender teams (designers, constructors and estimators) are often working with limited time (and budget) and uncertain inputs. Discussions about the extent to which designers should be liable for tender design work need to start with the recognition that the designer is providing a partial service, in limited time, with limited budget and often based on very limited information. The tender design is often based on assumptions that cannot be fully tested and cannot be subject to the usual checking and verification processes because of time and budget constraints. The quality of deliverables that are provided for pricing purposes is inevitably impacted by those limitations. It
is critical that designers and constructors have constructive and transparent discussions about those constraints on the quality of pricing deliverables and that the risk profile being adopted is agreed and understood at the outset of the tender phase. The challenge here, of course, is that when tender design is found to contain issues that are negligent errors or omissions in the subsequent delivery phase (rather than inevitable issues that are a consequence of the risk profile adopted), the designer will invariably argue that the tender phase duty of care and limitation of liability apply. It’s not an unreasonable position, but it annoys constructors for two reasons: 1. The error is usually only discovered in the subsequent delivery phase when it is too late to adjust the price; and 2. The loss borne by the constructor can often be many times greater than the designer’s tender phase limit of liability. This brings us nicely to the limits of liability that should apply to tender phase work. How much should I get? I would argue “not too much”, because the designer offers a partial service that is not subject to the usual checks and verification within tight time and budget constraints. Additionally, the designer is not usually privy to the final pricing decisions of the constructor –
it is the constructor that must weigh up all of the threats and opportunities, including those associated with design issues and quantity creep, and make an appropriate allowance in its price. This is not to say that the designer has no responsibility for these items – if a designer has made a negligent error or omission in performing the tender services, it must shoulder its share of the consequences in accordance with the tender services contract. I also think that higher limits and more onerous duties of care imposed retrospectively on tender design work will be counterproductive, leading to more conservative designs (that designers can safely deliver in the subsequent phase with reduced threat of claims) that reduce the likelihood of winning the bid. Tender teams (designers and constructors) perform best when both parties engage in constructive and transparent discussions about budgets, work scopes, duties of care and limits of liability. Both parties need to reach agreement on suitable terms that enable each to perform at their best, without too much fear of subsequent claims. I think a balanced approach is required – all care, some responsibility. CP
CONTRACTOR PERSPECTIVES 2015
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