Constructing a Healthy Industry

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• Constructing a Healthy Industry
• NZIHT Conference 2009, Rotorua
• Jeremy Sole
• CEO, NZ Contractors Federation

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(No Transcript)
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District Council July 2009
From Council Report At the May Operations
meeting, the committee noticed that we are
receiving more tenderers and prices below
estimates By packaging into larger contracts,
this will entice competition from outside the
region. Our historical approach of advertising
construction contracts into smaller packages does
favour district based companies
While district may receive short-term gains,
the biggest risk to the District is the closure
of roading firms or reduction in construction
capability based in district
To receive the greatest benefits for ratepayers,
Council needs to be flexible in the way that it
packages its contracts on an annual basis. Some
years it may be beneficial to package contracts
together, some years the reverse may apply
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From Regional Newspaper 28/10/09
council roading engineer name said the council
was rapt at the pricings, after years of having
to fork out big sums to contractors. Thanks to
the recession, those contractors were now being
forced to put up competitive prices Over the
last few years of the boom the council got
absolutely hammered in the tender box and we were
struggling to be able to fund things. Now that
that market's turned, we get to win some
back." "When there's plenty of work available, no
one's interested in us, but because we're here
year-in, year-out, they're all trying to get in.
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A Contractor Response

• I believe that someone would have to be naive to
  ask anyone to do work at below cost, and expect
  to get a continuous quality result.
• unless principals take steps to look after their
  contractors, they run the risk of having their
  core contractors going out of business. In the
  long term this is likely to result in a reduced
  service and available resources which will
  undoubtly result in increased costs.
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• I have been involved with contracting for the
  last 20 years and the costs have increased over
  the years, we have experienced fuel increases,
  material and labour increases, any margins we may
  have enjoyed in the past have been dwindled away
  and the cost of compliance is continually
  increasing further.
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• Wet weather has affected progress on 11 days out
  of 21 working days in the last month.
• Employers have been hit with the 4 weeks holiday
  law.  It is not just the cost of wages but the
  effect on production.
• Increased wages
• Increased fuel costs
• Increased cost of new machinery due to steel
  prices and currency fluctuations
• Increased administration costs due to compliance
  and contractual demands.

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Collaboration at its worst?
Council youve built the road 600mm out from
the specified alignment Contractor No I
havent, its within your own survey
parameters Council No it is not in the proper
alignment, you will rip it up and start again at
your own cost Contractor how about we
re-survey it, and if its my fault, Ill rip up
the road at my cost and start again if its your
fault, Ill rip it up at your cost and start
again Council ohahum.well, I suppose we
could live with it as it is
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Some Predictable Responses
Im tendering below cost but at least if I get
it, I will lose less money than if I
dont Or If I can just get it, I can offset the
losses through the variations, or by skimping on
a few things Or I think Ill avoid doing work
for them I dont want to deal with that
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Errors in thinking
Partialism This is by far the major error in
thinking where the thinker is looking at just
part of the situation and basing his argument on
that part. It is an error consistently and
deliberately used by politicians and anyone else
who has to prove a point
Egocentricity The thinker sees the situation
only in terms of how it affects them personally.
The error does not lie so much in self
interest, but in the inability to see the rest of
the situation Edward de Bono
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A Complex Industry Environment
Complicated Can be disassembled or analysed
into their constituent parts Complex From the
mutual interaction of the parts of a system,
there arise characteristics which cannot be found
as characteristic of any of the individual parts
While the constituent parts of our industry are
easily identifiable, the behaviour s that emerge
from their interactions with each other and their
environment are complex.
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Unraveling the System

• System Models have been developed to better
  understand,
• not predict, the dynamics of multiple complex
  interactions
• CAENZ
• A Study into the Cyclic Performance of the NZ
  Construction Industry (2008)

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What is a Healthy Civil Construction Industry?
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Text from Conference CD Cover
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A Healthy Industry The Contractor Side
Healthy Supplier/Client Relationships
Risk
Quality
Productivity
Whole of Life VFM
HS
Investment in Skill
Time
Industry Growth
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The Local Government Client Side?
Risk
Supplier/Client Relationships
Experience
Mindset
Contract Conditions
Whole of Life VFM
Qualifications
Awareness
Procurement Strategies
Industry Growth
Range of Project Sizes
Operating Environment
Bundling
Long Term Lower Pricing
Competition
Innovation
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Interface Example
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Interface Example
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Key Words
Relationship
Risk
Procurement - Method - Contract
Health and Safety
Skill Development
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Risk
Success in the Civil Construction industry
depends on the parties ability to identify ,
assess, allocate, mitigate, and price
risk. Skill and transparency in this area
directly effects profitability, productivity, and
quality
While risk should be borne by the party best
placed to manage it ..
..thats really hard to when clients modify the
contract, through ignorance, or to mislead, or to
deliberately obfuscate. This behaviour prevents
tendering parties from understanding the
allocation of liabilities and responsibilities
embedded in the project and causes market
distortions and litigation - and it destroys
relationships
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Risk Contracts

• NZS3910
• Built by NZ the Civil Construction industry for
  the NZ Civil Construction industry
• Response to NZ client and supplier desire to
  have a single well understood contract form
• Works for a wide variety of procurement methods
  - including collaborative
• Many years of development and experience in NZ
• Has strong, clear, well developed NZ legal
  precedents
• Professionals across the NZ industry understand
  it
• Needs an update

• Is being abused

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NZS3910
In 2009 NZCF commissioned Kensington Swan to
evaluate how some local authorities were using
abusing NZS3910 a small selection of findings
follow
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3910 Modifications Skill or Ethics?
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3910 Modifications Skill or Ethics?
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3910 Modifications Skill or Ethics?
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3910 Modifications Skill or Ethics?
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Skill Development
Often the best outcomes come not from purchasing
the training, but from creating an environment
where learning takes place, simply because you
have stimulated the desire to participate
Sense of Competence Appropriate Autonomy Part
of something worthwhile
But that is just a starting point..
There is no substitution for formal
qualifications if you are serious about the
future of your business the day is coming when
your clients will demand qualifications and they
will rank you on your commitment to developing
the capability of your people!
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Procurement Methods
The NZTA Procurement Manual is a strong and
sophisticated document and contains a wide range
of procurement strategies and guidance on how and
when to use them.
The impact of procurement method selection
decisions on the health of the whole system is a
function of the environment, skill,
understanding, and the mindset of the person,
selecting the procurement method
Quote I dont know anything about tendering, I
just sit on the Tender Evaluation Panel Mayor of
withheld
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Health and Safety
If we look to first aid certification as an
example no matter where you are or what your
business around the country, when someone flashes
their first aid certification in front of you,
you know what training the person has had and
what you can expect from them. Not so with
health and safety, as there are a plethora of
different certification processes and brands and
no way to map or compare them against each other.
There is no clear consensus or strong empirical
proof that improvements in Health and Safety are
attributable to current certification regimes
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Text from Conference CD Cover
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So What is NZCF Doing?

• HS Working with Master Builders, Certified
  Builders, Site Safe, RoadingNZ/Operate Safe to
  create a pan-construction industry standard HS
  Regime (Infratrain/BCITO, ACC, DoL engaged)
• Procurement practices study in progress (LGNZ,
  NZTA)
• Evaluations of NZS3910 use with KS, ELF, ARCG
• Relationships with local authorities Strategic
  Plan Item In progress
• Skill Development Road shows Training as
  Prequal NPA
• Risk - as above and promoting collaborative
  working models

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Text from Conference CD Cover