Local Government magazine editor Ruth Le Pla talks to Infrastructure New Zealand about what the Government well-being budget means to the project pipeline and the short-term future for civil contracting.
It’s important to make the point right up front that we see infrastructure as fundamental to well-being, says Stephen Selwood, the chief executive of Infrastructure New Zealand.
“It’s the tangible foundation upon which well-being is created: Be it schools, hospitals, roads, railways … all of those things are fundamental to building well-being for the country. So, we did expect there to be a strong contribution in the budget towards infrastructure.”
And was there enough?
There was a mixed outcome. The commitment to a longer-term investment pipeline for health and schools’ capital programmes was really positive. That’s really important for the construction sector to have more certainty about the investment profile and therefore invest in the people and capital equipment required to deliver.
It was very positive to see the investment in rail and [I] particularly liked the description of a long-term rail plan: KiwiRail and rail has been on a constant drip feed for so many years now where in every budget they get a few hundred million [dollar] top-up just to keep them going. Whereas, I see this [year’s budget] as repositioning rail in much more longer-term thinking and planning, which is a really positive thing.
The missing gap was in the roading space. We are seeing that the National Land Transport Fund is now being required to fund not only road improvement and maintenance – which has been its traditional function – but it’s now doing walking, cycling and rail across the whole of the country.
And there’s simply not enough money going in to do its job. Consequently, NZTA is having to defer really important road investments across the country that many councils are seeking to have – and particularly the growth councils. And the road system is just not keeping pace with the growth that’s happening.
We’re also seeing serious declines in road safety across the country. And while we always blame the drivers, the reality is that traffic volumes are just steadily and inexorably increasing on 1930s [designed] roads.
Obviously, there’s a knock-on effect on contractors in the road construction sector if major projects are put on hold or there is uncertainty around them. How can they best respond?
They are re-gearing themselves in anticipation that there will be a significant pipeline of work in rail. But the difficulty is that it has been slow to come to market and the major projects like light rail in Auckland don’t seem to be proceeding fast by any stretch of the imagination. So, given that, there is significant uncertainty across the sector.
On the positive side, major projects like Central Rail Link, if you are part of the consortia you are scrambling around right now trying to find resources. It’s the classic boom/bust scenario. Those in the roading sector are in the bust and those in the rail sector, if they’ve won the contract, are in the boom.
It just goes to show the difficulties with inconsistent policy that arise and we wonder why the productivity of our sector is very low – which it is – and there’s a lot that we could do to improve productivity.
It, essentially, comes down to the work that we hope that the NZ Infrastructure Commission will be doing to think and plan longer term to build political consensus over infrastructure policy and to have major project capability and expertise within it to help guide some of those mega-projects to the best outcome.
So, while things are looking a bit sad at the moment, that [i.e. the creation of the NZ Infrastructure Commission] is a glimmer of hope on the horizon and Infrastructure NZ has been a very strong advocate, of course, for the commission and we were delighted to see almost universal support for it in the submissions process.
We were also really pleased to see bi-partisan support in the House when the Bill that sets it up was initially read. That is a very positive initiative.
…the National Land Transport Fund is now being required to fund not only road improvement and maintenance – which has been its traditional function – but it’s now doing walking, cycling and rail across the whole of the country.
How would MBIE’s National Construction Pipeline Report tie into all of this? Isn’t that what it’s meant to be doing anyway?
This is the report by MBIE and Pacifecon [contracted to produce it] … that is valuable in terms of showing the total spend, but it tends not to be project-specific and there is no sequencing of projects to market.
There is no certainty of whether or not they will be funded. So, it’s nice to look at the ‘in theory’ numbers – and it certainly has tracked investment over time and you can see an ongoing trend that is positive.
But, it’s a question of which projects, where, when, and how will they be procured and funded. Who is the responsible agency, and do they have the capability to deliver? Those are all the big question marks that create uncertainty and the contracting industry sits back and waits.
Look, there are faults on the contracting side as well, I believe, because they are still following the same process to delivery that they always have.
They are still bidding low and accepting risks when they probably shouldn’t. And we’ve seen that play out in the issues, particularly in the vertical buildings construction market that Fletchers and Mainzeal and Hawkins have all been the exemplars of.
How about in the ‘non-vertical’ part of civil contracting?
Non-vertical has been much more positive, pleasingly.
Traditionally, the primary reason for that has been [that] the NZTA procurement processes have been among the best in the country – if not, the best.
The dedicated funding certainty that NZTA has traditionally had, has meant they had the funding capability, and the procurement capability, to bring projects to market. They engaged regularly with the roads construction sector, as an example, and so there was good transparency about the project pipeline.
But, of course, that has now changed and there is no certainty about the road investment programme. There’s major uncertainty about the rail investment programme – particularly light rail – and that has caused a major ripple across the sector.
Then local government, itself ….. we can see some really positive initiatives. Auckland Council would be among them.
Watercare – which has been quite proactive about engaging in the market and providing more transparency about projects coming to market: and that’s all been very positive.
Across the wider sector, though, with a number of local government/councils, it’s very hard to see transparency around that and it requires one-on-one relationships by contractors with councils to understand market opportunities.
What can be done about this?
This is where the role of the NZ Infrastructure Commission will be important because one of its intended purposes is to collate information from councils about their future investment pipeline.
One of the problems is [that] councils at the moment do quite robust work around developing their long-term plans but if you are an international – or indeed a domestic – provider looking to the whole market rather than just an individual council, just the collation of that data into a standardised format (because they don’t have consistent formats of presentation of long-term plans) is an enormous exercise.
We’ve tried it. Frankly, it’s an exercise in frustration. You just finish the process with the last 10-year plan and the next round [of planning] comes around and you’ve got to completely re-engineer the work that you’ve done. So, we just gave up on it. It was too hard to get consistent data in any one place.
Are you hopeful that the Commission will cut through that problem?
I am hopeful. That is one of the fundamentals. And even if it fails to convince councils to present data in one consistent way – and I hope that it doesn’t – at least it [the Commission] will be adequately resourced to be able to package that [data] up in a credible format that the market can respond to.
What kind of timeframe would you put around that becoming a reality?
I would expect it would probably be two to three years. The first year of the Commission is going to be very much about getting its foundations established, drafting the first of the plans and forming partnerships and relationships with all of the respective players across the sector: government, local government and the supply industry.
In parallel with that, this kind of data analysis will flow, and one hopes they can do that as quickly as possible. My guess is probably two to three years would be the best outcome one would expect.
That’s a long time for some contractors to hang on in there with the degree of uncertainty?
Agreed. The faster that that can be done, the better. But, to be fair, they have put up with this uncertain market now for quite some time and I guess it’s just about putting up with the pain for a little bit longer.
Stephen Selwood, chief executive of Infrastructure New Zealand.
This article was first published in the July 2019 issue of NZ Contractor Magazine.