New government procurement rules coming into force this week will help keep construction companies afloat by promoting better practises when awarding multi-million dollar construction projects, Economic Development Minister Phil Twyford and Building and Construction Minister Jenny Salesa say.
Phil Twyford said the "lowest price model" approach used across the sector resulted in construction companies cutting costs and under cutting each other so intensely that some projects became financially unviable. "In the worst cases, companies collapsed before construction was completed, resulting in sub-contractors not being paid.
"The new rules move away from a 'lowest price model' to a 'broader outcome model' which has to take into account the financial health of the construction company, the health and safety of its workers and the environmental health of the building," he said.
The new wide-ranging Government Procurement Rules come into effect on October 1 and use the Government's annual procurement spend to achieve better public value, by targeting ways to improve cultural, social, economic and environmental outcomes.
The rules refer to new Construction Procurement Guidelines which require government departments to consider factors including skills development and training undertaken by construction companies and their subcontractors, whether there is strong governance over the project and sustainable building practices such as using sustainable materials and minimising waste.
Jenny Salesa said the new guidelines help address some of the key concerns raised through the Construction Sector Accord, including a focus on the whole of life public value and reducing financial risk.
"We are helping boost the resilience of construction companies by being more transparent in contracting about what risks exist and who is liable for managing them. This allows for fairer pricing, fairer margins, and less likelihood of unexpected financial shocks. It considers the whole of life value to the public of construction, not just the initial costs.
"This initiative is part of the Government's comprehensive plan to address the long-term challenges the sector faces through lasting system and behavioural changes. Government contracts make up 18 per cent of all large scale construction projects," Jenny Salesa said.
Phil Twyford said as consumers, government has the power to influence industry through its spending choices. "We are now making an effort to use our collective government spend to make a difference where it counts. This is about the Government leading by example, and we hope the private sector will follow suit," he said.
Notes to Editors:
- The Construction Procurement Guidelines are available here:
https://www.procurement.govt.nz/procurement/specialised-procurement/construction-procurement/
And the Health & Safety Guide here: https://www.healthandsafety.govt.nz/reports/good-practice-guides/
- The Construction Procurement Guidelines are one of many initiatives currently underway to address some of the major challenges facing the construction sector. These include: the Construction Sector Accord, a commitment between government and industry to transform the sector by driving the right behaviours through a sector-wide mandate; and the Construction Skills Action Plan, which specifically addresses issues around skills and workforce, and aims to deliver the right people, at the right time, with the right skills, to meet New Zealand's current and future construction needs.
- The construction sector is New Zealand's fourth largest employer, providing work for nearly 250,000 people. However, the industry is characterised by multiple long term issues such as skills and labour shortages, poor risk management, unclear regulations and pipeline and a lack of coordinated leadership, which have never previously been cohesively addressed.
- The Construction Procurement Guidelines were originally released in 2015 and have been updated. The update includes providing guidance related to the broader outcomes work programme, which prioritises use of the Government's annual procurement spend to achieve better public value for money, by targeting ways to promote better cultural, social, economic and environmental outcomes.
