Cost of uncertainty for civil construction

Alan Pollard, Chief Executive, Civil Contractors New Zealand, explains why infrastructure investment is no longer a choice if we are to remain globally competitive.

I recently had the opportunity to join a panel to provide civil construction industry feedback on Infrastructure New Zealand’s recently released report Estimating the costs of an uncertain infrastructure pipeline.

The report, prepared by Infometrics, indicates that having a more certain infrastructure pipeline could lead to an uplift in investment of between 13 percent and 26.5 percent (between $2.3b and $4.7b more each year).

This is consistent with the feedback from our 2023 Construction Industry Survey, undertaken in partnership with Teletrac Navman.

Conducted prior to the election, the survey found 84 percent of respondents thought the development of a clearer pipeline of central and local Government work would have a positive impact, while 74 percent felt infrastructure investment and maintenance should be a ‘top two’ initiative for the incoming government.

By contrast, only 18 percent of respondents were confident in the government’s commitment to infrastructure, only nine percent of respondents were confident that adequate funding would be made available for projects and maintenance initiatives, and only seven percent were confident that our infrastructure could cope with climate change and any future adverse weather.

The Infrastructure Commission infrastructure strategy highlights an infrastructure deficit (and therefore required investment) of $210 billon over the next 30 years. Budget 2023 provided for $71b in infrastructure capital and maintenance investment over the next five years, and $6b for weather related resilience, while the draft Government Policy Statement on Land Transport provides for an increase in funding for roading capital and maintenance projects. But, promises don’t get things built. It is only a well-defined, committed, and funded programme of work that provides our members with the confidence to invest in the people (through recruitment, training, and development) and technology (much of which could have relatively early productivity benefits) that will be needed to undertake the infrastructure works.

Infrastructure NZ’s report on the cost of an uncertain pipeline provides a case study of the civil construction sector, concluding that return on equity, return on assets, and surplus per employee – are all substantially below the total construction industry average levels, requiring significant increases in productivity to improve those performance indicators. But, there are so many factors impacting sector productivity, many of which are out of our control.

Government and agencies think of construction as one size fits all. However, the horizontal construction sector is very different to the vertical sector – structurally, demographically, role types, and so on.

Too often policy decisions are made based on this lack of understanding (immigration policy is a prime example of this). Often legislation and regulation may work for the vertical sector, but is not fit for purpose for the horizontal sector thereby constraining efficiency and productivity.

The report refers to the positive impact of an efficient and effective procurement process. It is clear that we must approach procurement differently – poor procurement practices encourage bad behaviours which (again) constrains efficiency and productivity.

For example, let’s remove the over-engineering or over design of project solutions – this is wasteful, costly, and unnecessary. We don’t need bespoke solutions for every project; existing designs can often be reused producing better more cost-effective solutions.

Our industry is subject to some of the most rigorous health and safety requirements of any sector.

Our members embrace that seriously and willingly, being some of the best health and safety practitioners in our country. We can save lives and livelihoods through good health and safety practices, but this can result in a potential trade-off between health and safety and productivity.

It would be interesting to measure the significance of this trade-off, not to reduce our focus on health and safety, but to better provide context around how our sector must operate to those outside it.

While we are waiting for the new coalition government to formally announce its priorities, and where each of the parties has made compromises – our clients need the confidence to continue to invest.

We are currently in a bizarre situation where we know there is so much to do and so many promises made, yet clients are cancelling projects, reprioritising them, or talking about ‘sweating the asset’ again due to uncertainty about the direction of the incoming government or funding constraints. This uncertainty flows through the sector and puts our ability to deliver at serious risk.

The pipeline uncertainty report refers to the positive impact of more effective infrastructure investment models. We have a large investment programme ahead, but I have major concerns around how it will be paid for.

Successive governments have failed to address the need for a more sustainable infrastructure investment model. The incoming Government now knows that the cupboard is bare, and it cannot afford to repeat the mistakes of the past.

We need to be creative and innovative about how we address this short-, medium- and long-term funding issue.

Our political masters must address the continuing politicisation of infrastructure. We have a three-year political cycle and a 10-year local government long term planning cycle. But, much of our infrastructure is intergenerational. We must have an infrastructure programme and funding model that has cross party support and endures well beyond our central and local government political cycles.

Infrastructure investment is no longer a choice – it is a necessity for the health, wealth, and well-being of our communities, and a necessity if we are to remain globally competitive.

The incoming Government has the opportunity to address this issue once and for all. The question is, – does it have the courage and political will to do so?

For the sake of us all, I hope that it does.

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