The construction industry is balking at being asked to shoulder too much risk for major Government projects

Tuesday, 21 November 2017

The construction industry is increasingly wary about taking on contracts, like the Justice Precinct contract one, which force contractors to shoulder too much risk.

Cost blowouts and changes to major projects are making the construction industry wary about taking on big Government contracts.

The comments come in the wake of an announcement that Christchurch's long awaited Metro Sports Centre is over budget by $75 million and the Government has axed a deal with preferred contractor, Leighs Cockram Joint Venture.

A rethink of Christchurch's $300 million Metro Sports Centre could see all or part of it included in a multi-use stadium.

Registered Master Builders Association chief executive head Dave Kelly said there was a worrying trend towards 'novated' contracts where the contractor was asked to take on risks associated partially completed project designs, without that being reflected in the price paid.

He said novation had occurred with the Fletcher Construction contract to build the Justice and Emergency Services Precinct, which also incurred heavy penalty payments when it was not ready on time, and he understood the Metro Sports Centre deal included a similar clause.

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Kelly said the practice, which seemed to be increasingly favoured by some Government agencies, was destabilising for the industry when it needed stability to handle a growing work load.

'This is a real hot topic in the construction industry at the moment where there's real concern about this practice of trying to get the contractor to take on all the risk but not recognising that, and trying to screw down the price.

'The key thing the industry is saying is, get the contractor to be responsible for the work they do, not for the work of others.'

Kelly said involving the contractor early on in the design of a project was a good idea, 'but the client still needs to understand they wear the risk until it [the design] is completed.

'I think there's going to be a lot more push back against these sorts of contracts.'

Chief executive of Civil Contractors NZ Peter Silcock said his members, who were mostly involved in horizontal infrastructure such as roads and underground services, were also unhappy about being asked to shoulder risk for things they had no control over.

He likened it to asking a builder to price a house when you didn't know how big it was going to be or what materials would be used.

'People are getting very wary of novation. The reality is that it's very easy to lose your shirt.'

In other cases large projects were ditched altogether, as had happened with the Labour Government's decision not to proceed with Auckland's East-West link motorway.

Silcock said several companies had 20 to 30 staff working on the link in preparation for making bid.

'It's not unusual for companies to spend hundreds of thousands and may be millions of dollars on these large projects.'

Certainty about work flow was important, and the new Government's focus on public transport had put question marks over future major work on the state highway network.

'It's tough for a contractor when a job they were thinking they were going to do or bid for is no longer on the books.'