Malcolm Abernethy, Executive officer, Civil Contractors NZ
This month (June 2015) I am writing this column in two sections that are loosely linked.
It is my view that contractors need to cover the costs of doing business, recover some return on investment and on the way make a reasonable profit.
We currently hear anecdotal reports that rates are low with very small margins being returned. There is no allowance made for when something goes wrong or when difficulties that cannot be recovered through variations or extensions of time are encountered.
The cost of doing business seems to become greater – it is the issue that never seems to go away – the cost of compliance.
Contractors continually work at developing management systems that fit their business. Management systems that are unique and contribute to making their business professional and where they can add value to their clients’ projects based on their knowledge and skill. Contractors that invest in their business processes have technical and management skills and support their employees with training that ensures they have the competency to carry out the work.
The cost of developing and maintaining management systems are considerable and some would say will be even greater in future once the health and safety reforms become law. The management systems are required to both meet and demonstrate that the company is satisfying all its compliance requirements. Once the health and safety reform becomes law these ‘good’ contractors may not experience much change as they may already be doing more than meeting their compliance requirements.
Contractors confirm the adequacy of their management systems and processes by having annual independent third party audits for quality, environment and health and safety all of which have significant cost and take time. For most contractors the benefits are obvious as they are sought out to undertake further work in the future relying on their track record supported by the competency of their entire organisation. These contractors should also experience less rework or breaches of compliance requirements around environmental activities and health and safety.
‘Good’ companies actively train their employees to ensure they have the competency to carry out the work. However there is a significant cost in developing and maintaining management systems and ensuring employee competency and again the ‘good’ contractors will add those costs into their pricing structures.
We are in a phase of having reasonable amounts of work available (patchy in some parts of the country) yet contractors still need to compete for the projects which tends to drive the price down.
One issue associated with this is that some clients may well accept a low price fully realising that the contractor does not have adequate compliance and management systems in place. Or alternatively the contractor does not include the compliance costs in the pricing structure.
The result is that rates are low continually being driven down leading to the potential of unsustainable tenders where the true cost of construction and managing the business is not covered. Margins are also reportedly low adding to the difficulty of getting a return on the considerable investment in often specialist resources.
It is essential that both clients and contractors acknowledge that low pricing is not always the best price and that where a low price is accepted then both quality and time may also be compromised.
The second issue is health and safety reform, which requires a change of the emphasis from simply identifying and managing hazards to one of identifying and managing risk. Risk based approach where the risk of a particular occurrence is identified and its probability determined.
To manage those risks we should adopt the internationally recognised hierarchy of controls which includes eliminate, isolate, engineering controls which is effectively minimising, administration – processes for managing health and safety and finally Personal Protective Equipment (PPE).
PPE is the last line of defence however the use of PPE should also be subject to a risk assessment to determine its effectiveness.
In 2012 NZTA made the use of long sleeves and long trousers mandatory for work on the State Highway network following on from the introduction of ‘long longs’ by SCIRT for the Canterbury rebuild teams.