Construction sector output focus urged

Photo: Getty Images
Photo: Getty Images
The construction industry will spend more than $300 billion during the next decade, employing 9% of the New Zealand workforce. But a report says the sector’s productivity is lacking. Business editor Dene Mackenzie reports.

Improving procurement management, process and the contractural framework could lift the productivity of New Zealand's construction sector

A McKinsey report ``Reinventing Construction: A Route to Higher Productivity'' identified construction sector productivity improvement globally had fallen well behind most other sectors and there was scope to improve performance by 50% to 60%.

The Construction Strategy Group and the Construction Industry Council say there are easy wins for New Zealand if some of the better practices from countries that were more advanced were implemented.

Along with a reskilling of the workforce, greater use of technology and reshaping of regulation would be practical starting points.

In a briefing paper to the incoming Government, the lobby groups said a 5% improvement in the construction sector productivity in New Zealand would deliver savings every year of $1.5 billion.

One extra Waterview Tunnel project every year or 20 new Greymouth Hospital buildings could be built from those savings.

Construction needed a new champion, the groups said.

``A big step forward will be giving priority to the importance of the construction industry by assigning a new senior minister of construction and infrastructure to champion the sector and bring fresh ideas and enthusiasm.''

The linkage of the construction and infrastructure portfolios could be used as a signal of the new priority, group spokesman Geoff Hunt, also president of the McConnell Group, said.

Prime Minister Jacinda Ardern named Labour MPs Phil Twyford as Minister of Housing and Urban Development and Jenny Salesa as Minister for Building and Construction. New Zealand First MP Shane Jones is Infrastructure Minister.

Labour set a target of 100,000 new homes in the next 10 years, leading to calls from the construction sector for no ban on immigrant labour.

Most of the new houses seem likely to be built in and around Auckland as Mr Twyford had indicated his preference for satellite cities around New Zealand's largest centre.

Mr Hunt said there was no silver bullet in looking to overseas conglomerates to meet capacity constraints.

``They rarely bring more than project management skills and look to the local labour, which would, in turn, exacerbate the skills shortages already apparent.''

One out of every five new jobs, or 26,000 new jobs a year, came from the construction industry, he said.

Labour demand in construction-related occupations was forecast to increase by 11%, or 56,000 people, by 2022.

Those occupations included jobs for higher-skilled roles such as construction project managers, civil engineering professionals and architectural, building and surveying technicians.

The construction sector had the highest percentage of workers with a post-school qualification as their highest level of qualification, Mr Hunt said.

``Crucially, we also need to get more students to take construction-related higher education courses and apply for jobs in the sector. All of this requires co-ordination between the public and private sectors.''

To meet the new jobs the sector needed, the Government would need to increase the labour supply through immigration and training programmes. Changes and creative approaches to policy settings to increase labour supply might be required, he said.

Improved performance and productivity were vital to meet the pipeline of work for 2020. Poor labour productivity could be addressed by raising skill levels of workers and encouraging more students into higher education courses for the construction sector.

The low rate of productivity was exacerbated by issues like the volatile and cyclical nature of the industry, he said.

The average tenure of workers was reduced, creating uncertainty for businesses and discouraging investment in additional capabilities.

Small construction companies typically lacked resources to invest, resulting in a split of housing providers between very small and group home providers, often franchise operators.

``More certainty of ongoing demand would encourage development of scale, improvements in site supervision and overall project management. Scale and specialisation are needed to boost productivity and encourage investment for growth.''

Mr Hunt called for a change in the approach to contracts and procurement in the construction sector.

It was a complex issue as a drive for low-cost procurement resulted in poor design and poor project outcomes.

The construction industry needed to discuss with the Government how risk was allocated, to whom and why.

Risk and who should take it was not adequately discussed at the start of the procurement process. Many contracts ended up with a totally unbalanced allocation of risk, Mr Hunt said.

``This acts as a powerful brake to innovative development.''

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