By JEREMY SOLE, chief executive, NZ Contractors Federation

Many readers will already have read the New Zealand Contractors’ Federation’s recently published Productivity in Civil Construction: A Contracting Industry Perspective.

We commissioned Dr Claire Cohen to research and write this report in response to claims by local and international research and industry commentators that the productivity of the construction industry is declining in New Zealand, Australia, the USA, UK and many other parts of the world.

We wanted to understand why such claims are being made, given the technology improvements and innovative solutions observed in civil construction materials and techniques internationally, coupled with efficiencies in highly competitive supplier markets.

Dr Cohen carried out national and international literature searches, engaged with experts from the New Zealand civil contracting industry, senior local government, New Zealand Transport Agency and the National Infrastructure Unit.

Certainly, one of the major learnings that can be taken from the report is that we should be looking for more suitable ways to assess, find benchmarks for and improve the efficiency of the civil construction industry.

It also provides sound evidence on a number of other major industry issues so, if you haven’t read it yet, I urge you to. Certainly the feedback from both the industry and local government so far has been excellent and we are keen to engage further with councils on the document.

The report has also led to an offshoot project around the cost of tendering, being overseen by our executive officer Malcolm Abernethy, and I believe this will be of particular interest to local government.

We have been working with federation members to establish a picture of their approximate costs around tenders. This survey is in its early stages but the results are already looking very interesting, particularly around the cost differences between tenders from the same contractors to different councils for similar work.

The information we have already gathered suggests that between $60 million and $100 million a year is wasted in tendering processes.

One example we have come across is of contractors putting in tenders to one local council which are approximately 30 per cent higher than those they submit to a neighbouring authority.

The council getting the lower prices has a clear and transparent procurement policy including a robust prequalification system. The other tends to mess around with the contract terms and apportionment of risk to the point that contractors are pricing up because of the uncertainties that are introduced through this behaviour.

The risk is in the system regardless and when there is risk associated with a project the council can choose whether to wear that risk itself.

Quantum of risk is a contingent liability on council, as it may or may not happen. However, when a council shifts the risk to the contractor, the contractor will price the risk and it becomes an actual liability – unless council is awarding on lowest conforming tender basis without the benefit of an adequate pre-qualification system.

If that is the case then the council potentially ends up appointing a contractor who does not understand risk and is often not experienced in the work. If the contractor has not priced for eventualities they may be unable to pay for them.

There’s a real danger that, if the risk becomes reality, the contractor will go bust and be unable to finish the work. The council then has to pick up the tab for the risk they should have taken up in the first place – plus the costs of demobilising, re-tendering and re-mobilising.

Councils could avoid much of this additional expense by giving stronger guidance to agents with regard to setting up contract documents and procurement methods so as to better align with councils’ espoused regional and local business and economic development priorities or policies and supplier engagement policies.

This would result in the documentation being set up in a way that is fair and reasonable and with minimum wastage of council funds.

We suggest that an essential component in this discussion is a proper robust pre-qualification scheme and our new publication includes suggestions about how that could be achieved.

We don’t expect everyone to agree with us but, we are very pleased with the response so far from local authorities

There are no simple answers in such a dynamic and complex web of causes and effects. However, the federation is steadily tackling each issue with the aim of promoting a healthier, stronger and more productive industry environment for contractors and councils.