The Government has reached a “reset or death” fork in the road with its procurement policy, according to Senior Ministers.
This comes after some of the building industry’s biggest players called on the Government to use its 20% stake in the market to address some of the issues in the sector.
The Government Ministers responsible for building, infrastructure and procurement met with building industry representatives on Monday, following the “spectacular collapse” of Ebert Construction last week.
“This is a health episode,” Minister of Infrastructure Shane Jones told media after the meeting.
“And when a health episode strikes either an organisation, a sector or an individual you do a reset, or you contemplate certain death.”
Minister of Housing and Urban Development Phil Twyford says it's time the Government “took a hard look at [its] approach to procurement… to help the industry get back onto a stronger footing.”
The first step of this reset is reassessing procurement guidelines.
The Ministry of Business, Innovation and Employment (MBIE) does have procurement guidelines, Minister of Building and Construction Jenny Salesa says.
“Unfortunately, they’re not something that every business takes into account or adheres to and it’s not compulsory.”
Salesa said she would be be taking an “oral item” to Cabinet on Monday afternoon, where the reset in the Government’s procurement policy would be discussed.
“One of the things we would like to ensure is that ministries and agencies adhere much more to MBIE’s Government’s procurement guidelines,” she said.
This could involve requiring agencies bidding for Government contracts to provide evidence that they have taken the new procurement guidelines into consideration during the contract’s negotiation.
Most vertical sector contracts in the market belong to the private sector, with Central Government holding roughly 20%.
But, given some of the issues in the industry, Jones says some of the “good players” are calling on the Government to do what it can to influence better practices.
Calling a spade, a spade
“Let’s call a spade a spade,” Jones says.
“We have had Ebert, we have had the red ink from Fletchers – we’re not ignorant to the fact that there is a lot of pain and pressure there.”
Also with the Ministers was Master Builders' Chief Executive David Kelly, who said it was time for his sector to “step up.”
“The larger commercial sector does have some problems at the moment, I don’t think that’s any secret.”
He says Salesa taking this issue to Cabinet was “a good start.”
“We need to start with simple things we do right now… If the Government sets the scene, others will follow.”
He says there has been a general trend over quite a long period for a lot of players to go for the least cost model.
“Unfortunately, far too many construction companies have ended up buying into that system.”
Kelly says new procurement guidelines will be released to its members next week.
25 Comments
"... a lot of players to go for the least cost model." Really? Surely it's the customer that decides what model is chosen, and if THEY decide on cheap, cheap is what will be tendered. What would 'we' all say if the Government started accepting the most expensive quote?
I can only imagine the cost in real terms to the developer to sort this out and have the project continue. Incoming contractors will now be rubbing their hands together at the expectation that they can charge what they wish or not bother. "Lowest, or any tender, not necessarily accepted", was noted on all tender documents that I have been party to. Much is also made in such documents about the tenderers capabilities and resources. The developers are equally culpable if they have pushed it to this point in their lowest cost belligerence. I suspect it may have been in the developers financial interests to support Ebert to some degree to avoid this total failure.
Normally the tender documents should outline non-price attributes and how the scorecards are weighted. But if everyone is throwing in a low ball offer and there’s price shopping going on then it’s irrelevant. Basically, if you’re pricing any Fletchers jobs and you have any Fletchers owned competition you might as well tag your Quotation as “Indicative” and move on with life. Pricing for practice.
The cheapest price one can get in construction industry is rarely the cheapest way to get the project done. Especially so at the beginning of a project when employing consultants. The amateur developer (and govt departments) choose the cheapest consultants who will put the least time, effort and skill into documentation leading to huge cost variations on site, as well as poorly considered designs that intrinsically cost more to build. In contrast the most successful developers tend to chose teams, including builders, on ability to deliver, more than price.
Every time I've seen the low outlier tender accepted it has been a balls up and cost more than the more average tender.
FLETCHERS have got the Government by the short and curlies ............... and now its a real problem .
I can see from the terminology being used in this interview that the boys from Fletchers have got the Government all tied up through lobbying
WTF are the hacks in Parliament so naieve as not to see whats happened ?
Most people use the disruption catch phrase to represent achieving even lower costs for the consumer. The construction industry is already low profit margin or losing money. So do you think the solution is for construction companies to lose even more money and have more failures?
If you want something to disrupt you need to start with Council's which are obsessed with holding up building consents, instead of their job which is to process them. There is no processing going on only making excuses for creating delays because they have few or no resources to process building consents.
Council's need to be fixed first but the Minister of Building and Construction does not give a damn about fixing those very real problems. It would also require fixing the problems in MBIE but she does not give a damn about fixing those issues either. Why fix major problems when you can pretend to be doing your job as the Minister?
This government is pretty gullible. I would not be surprised if there was an element of opportunistic softening up the government so that the sector can carry on with it's sloppy ways, over priced building materials and the corrupt sweetheart relationship between Fletchers and the government. Unfavourable outcomes are a natural consequence of bad or sloppy management practices. By all means look at the sector as a whole and restructure out bad practices, constraints that impede an efficient, free market, waste and inefficiency from unnecessary regulations and bureaucracy, risk and doubt due to external factors, BUT do not use this as an excuse to prop up or paste over anything that impedes the most competitive and efficient market that we can achieve.
Whatever, we all know the problem is near extraordinary land prices, material costs and council ticket clipping - NZ wide!
As for Auckland, it's an open secret Real Estate Agents and Lawyers run the show. Much of their ticket clipping could be stopped by simple (aka cheap), interactive databases for Certificate of Title transfers, escrow services, interests and automatic approving of building consents - where compliant with the RMA.
The RMA is supposedly comprehensive and law, so why are so many lawyers, agents and council ticket clippers involved, even before a foundation is laid. It's 2018 people, login, tick the boxes, print out the consent and then call the contractors. Why have an RMA at all if everything is going to be litigated anyway?
As for building materials. Create a 'price spy' website for building materials and have a feature where, for example, smaller building companies can all put money into an escrow account and buy a large shipment of plywood at an agreed (and wholesale) price.
It's pretty simple, I could go on to solving the labor (skills) shortage, prefab, etc, etc but I'm not getting paid and it would just be more to proofread. Information technology kills ticket clipping.
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