A year of reform 

Image: Anchor Testing at Waimakariri Bluff. Taken by Charles from Abseil Access.

It has been another difficult year since our last review, write Brendan Cash (Partner), Caitlin Hogan (Solicitor), Ezekiel Hudspith (Partner) and Miles Rout (Law Graduate), from Dentons. However, better conditions hopefully lie ahead. 

It has also been a tale of difficult economic conditions, which have impacted the industry and meant navigating tricky waters for some. 

Interest rates remained high throughout most of last year. The change in government resulted in a change in focus and some projects being canned, as we highlighted in last year’s review. It is now taking time to get new projects off the ground. The combined effect has meant a lull in activity. In our experience, this has been a year where the industry has been fighting the costs and delays on existing (often Covid-affected) projects, with fewer projects to bid for and get started.  

Reflecting these circumstances, the GDP figures for 2024 did not make for happy reading. The figures from June show that quarterly growth and annual growth were both -0.2 percent. This negatively impacted building consents sought. In the year ended September 2024, there was a 17 percent decrease in new dwelling consents and non-residential building consents were down 6.4 percent.

Unfortunately, this has meant that one of our predictions in last year’s review has come to pass – even more insolvencies. 

BWA Insolvency noted a 22 percent increase in construction insolvencies in the year ended June 2024.  As we explained in last year’s review, tough economic conditions put a premium on cash flow and meant many contractors were forced to rely on legal mechanisms to help preserve that, such as payment claims and fast track adjudications under the Construction Contracts Act. Again, directors also need to be conscious of their duties if their company is struggling and take advice (to avoid personal liability, which was the outcome the Mainzeal directors experienced).

Legislative changes

Our Perspective review last year also foreshadowed significant legislative changes in the sector by the new coalition Government. 

On three waters, the Government has taken a staged approach to repealing and replacing Labour’s previous reforms. The first Bill repealed Affordable Water, back in February. The second Bill became the Local Government (Water Services Preliminary Arrangements) Act 2024, which is intended to make it easier for councils to set up council-controlled organisations to handle water services.

Before the end of 2024, the Government intended to introduce its ‘Bill 3’, which will create a new regulatory regime for water services, new financing tools, and a new type of financially-independent council-controlled organisation.

On RMA reform, the Government has also packaged its work into three phases. The first phase was the repeal of the Natural and Built Environments Act and Spatial Planning Act. Phase two includes a range of initiatives, including the Fast Track Approvals Bill.

The Select Committee has reported back recommending that the Bill be passed. A significant change is that expert panels rather than Ministers will be the final decision makers.

Phase two also includes the Resource Management (Freshwater and Other Matters) Amendment Bill that was passed in October, and a second RM amendment bill to be introduced in late 2024 and passed by mid-2025.

Phase three is the replacement of the RMA. The Government has appointed an Expert Advisory Group to recommend the approach to the new legislation. The Group was to report back by the end of 2024, with a Bill to be introduced by the end of 2025.

In August, Cabinet also agreed to create the National Infrastructure Financing and Funding (NIFF) outlined in last year’s review, by repurposing Crown Infrastructure Partners.

The NIFF was established on 1 December 2024. Consistent with the Government’s desire to involve more private financing in public infrastructure projects that we highlighted, the NIFF’s responsibilities include being a partner to agencies on projects that involve private financing and acting as the Crown’s “shopfront” to receive unsolicited proposals and facilitate private sector investment in Crown infrastructure. 

Infrastructure plans

The Government also announced, in August 2024, work on the 30-year infrastructure plan by the Infrastructure Commission. The sector is welcome to submit its proposals for infrastructure priorities. The first round of proposals will be published in April (2025). The Government signalled a desire for bipartisan support regarding priorities, which, if achieved, should create greater certainty in the market over the long term. 

The Government’s shift in focus to roads was then reflected when, in June, it announced the Pothole Prevention Fund.

NZTA confirmed that $2.07 billion will be provided for the State Highway Pothole prevention and $1.9 billion for Local Road Pothole Prevention over the next three years.

The Government also announced the re-introduction of the Roads of National Significance (RoNS) programme, which includes 15 significant projects to support economic growth from Northland to Canterbury. One of the key projects is the Northland Corridor which will be split over three stages. 

Last year also marked the introduction of, and the market starting to use, the new 2023 edition of New Zealand Standard’s 3910 build-only contract conditions. 

We produced several articles over 2024 in Contractor summarising the main changes in the 2023 edition. Adoption of the new edition has, in our experience, been slow to date, but we have seen the desire to use it increase over the year, which hopefully foreshadows increased adoption in 2025 and with minimal special conditions.

The year ahead 

The OCR dropped to 4.25 percent at the end of 2024, as inflation reduced (2.2 percent in the third quarter). More cuts are predicted in 2025. Lower interest rates and Government projects coming to the market should stimulate the sector in 2025 and provide cause for some optimism.  

At least two significant public private partnership (PPP) projects should be progressed. First, the Northland Corridor RoNs project is expected to come to the market in 2025. The other is a new Christchurch Men’s Prison. 

As part of preparation for these and other PPPs in the future, in November 2024 the Government launched a refreshed PPP framework – the Blueprint for Future Transactions. However, it remains to be seen whether, in progressing PPPs, a better balancing of the risk between the public and private sectors can be achieved to encourage more private finance and contractor participation in such projects. 

In a similar vein, the Government has been exploring making use of KiwiSaver funds for infrastructure projects. This is still at the policy development stage. This year should see this and other initiatives advanced to take advantage of private finance to develop public infrastructure.

Even without that, providers like Simplicity have been investing in Build to Rent Homes, helping address one of our key deficits; the shortfall in new houses to accommodate a growing population.     

The Local Government Funding Agency (LGFA) has also increased how much it will lend to certain high growth councils and council-controlled organisations (CCOs). There is an expectation that councils will use this additional borrowing capacity to deliver must-have infrastructure and services, such as roading and three waters.  

The Auckland Airport announced in September 2024 that it would be contracting Hawkins to manage the construction of a new domestic jet terminal building worth $800 million.

The fast track list announced in October totals 149 potential projects and includes 22 electricity projects (wind farms, hydro, nine solar farms), 19 mining and quarrying projects, 90 kilometres of new highway and 70 kilometres of new rail and busway capacity to bring to the market over the years ahead.

Hopefully, the budget issues that have been holding up the new Dunedin hospital and the redevelopment of Whangarei hospital will be resolved and progressed, along with other work in that sector.  

With pandemic controls a thing of the past, the tussling over Covid affected projects will hopefully also start to draw to a close and the focus will then be on new contracts.

NZS 3916 and 3917

In terms of contracts, the review of NZS 3916 (design and build) and 3917 (maintenance) contracts will also be progressed.

Simon La Monica of Fletcher Construction and Paul Buetow of Dentons, CCNZ’s nominated representatives on the standards development committee, will provide input from a contractor perspective. The review will not re-litigate changes made in 2023 to 3910 but focus on the aspects specific to each contract (e.g., design obligations). Revised documents should be out for review and consultation shortly, with a planned adoption before the middle of the 2025.

Positive year ahead

Finally, the Government is also expected to progress further law reform in the sector. This should include passing the Building (Overseas Building Products, Standards, and Certification Schemes) Amendment Bill, which is intended to remove regulatory barriers in the building consent system to the use of overseas products and to improve competition in the building products market. 

The Government has also announced an intention to develop a new self-certification scheme for trusted building professionals carrying out low risk building work, to reform the consenting system to enable the consolidation of consenting authorities and for building inspection to be contracted out to private consenting providers.

This appears to progress, in part, the commitment in the coalition agreement with Act, we noted in last year’s review, around reforming the consenting process. Some of these reforms echo changes in the early 1990s that were subsequently blamed for helping bring about the leaky building crisis here.

It remains to be seen if these reforms will strike the right balance. Overall, we look forward to a busy and positive year ahead for everyone in the sector.  

• This publication is not designed to provide legal or other advice and you should not take, or refrain from taking, action based on its content. Dentons does not accept any liability other than to its clients, and then only in relation to specific requests for advice. For specific advice, contact your legal advisor or the Major Projects and Construction Team at Dentons on (09) 379 4196.