Competition pushing construction sector into ‘race to the bottom’

1

Competition has pushed the construction sector into a “race to the bottom” where companies are taking on projects to win revenue rather than chase profit, says a top industry boss. David Prentice was chief executive for seven years of NZX-listed Opus International Consultants, a multi-disciplinary infrastructure consultancy with 3000 staff that was bought by Canada’s WSP Global in December.

Prentice, who is now leading the integration team at WSP Opus in Wellington, did not wish to comment specifically on issues at Fletcher Building, which last week announced further losses of $660 million at one of its divisions and said it would not be bidding on any new big projects. But speaking about the construction industry generally, Scottish-born Prentice told the Herald earlier this month that the building market was becoming increasingly challenging.

“To design a building 20 years ago you’d need top structural engineers, your top architect, your top mechanical and electrical engineers. Nowadays a lot of this can be done using computer packages and what have you. So what it’s doing is it’s taking the design away from almost an art to a science,” Prentice said. “And what that means is that the margins that can be made on vertical infrastructure such as buildings is far less than it was before, therefore the need to make sure that you’re absolutely on point when you come to do that work is essential because very quickly a very small margin can turn into a very big loss,” he said.

“You always want increased competition but as long as increased competition isn’t a race to the bottom. Unfortunately it has been a race to the bottom so people are going in incredibly tight to actually win revenue, so they’ve been chasing revenue as opposed to chasing profit.” These issues weren’t isolated to New Zealand and around the world people in the building sector were having to work harder “to make an honest buck”, he said.

Prentice believed that the way in which contracts were procured needed to change as right now the client or customer was pushing all the risk to a consultant or contractor. “The best contracts without a shadow of a doubt are those contracts where risks are explicitly shared between all three parties, consultant, contractor and client … I think the client and the customers, particularly central and local government, have got a long way to go in respect of maturity in how they procure projects.”

Prentice’s comments were echoed by Registered Master Builders Association boss David Kelly. “We need to work with government to improve the way we manage pricing and risk in our sector,” Kelly said. “Government procurement should not be an exercise in one party minimising all their risk. At the end of the day, all parties need to commit to working collaboratively and equitably to deliver on a project. Anyone building or renovating a home, let alone a multi million dollar construction project, appreciates that there needs to be some flexibility in adjusting for costs”, he said.

“We need to move away from focusing on cheapest initial price — this never gets the best result, limits innovation and stifles research and development,” he said. In the wake of Fletcher Building saying it would not bid for any more big construction work, Auckland Airport chief executive Adrian Littlewood said any company with big projects would consider using overseas firms, including from China. “We like many others in New Zealand would like to see a proper and well-functioning construction industry [here].

There are also a bunch of European operators who have acquired New Zealand businesses and operate in New Zealand,” Littlewood said on Friday. Overseas firms would have to draw on New Zealand sub-trades if they were involved in big projects as it was difficult to import all the skills. Auckland Airport is spending $1.8 billion over five years on building infrastructure and Fletcher Building is involved in one phase of the Airport’s big build — the international departures terminal. Littlewood said Fletcher’s focus on completing projects was important for his company.

Source:

  • Hamish Fletcher
  • NZ Herald
  • Photo: Getty Images

Christchurch Convention Centre makes progress

convention centre

Artists impression of the convention centre from Victoria Square

Christchurch’s new convention centre could pull in $400 million in its first eight years, its developer says. Crown development company Otakaro Limited released new information and design images of the project on last week. “We want to create an attractive facility for Christchurch, that draws people towards the centre and its associated cafes and shops,” Otakaro chief executive Albert Brantley said.

The design allows the Christchurch Convention Centre to host events with up to 2000 people. It will include a 1400-delegate auditorium, a 3600-square metre exhibition hall, and 1600sqm of meeting rooms overlooking Victoria Square. “Estimates put the direct economic benefit of the convention centre to the Canterbury region at $300m to $400m in its first eight years of operation,” Brantley said.

auditorium

The auditorium is designed to seat 1400

Christchurch and Canterbury Convention Bureau (CCCB) manager Caroline Blanchfield said Christchurch had just 9 per cent of the national conference market, and attracted very few conferences from Australia. Before the old conference centre was damaged in the February 2011 earthquake, Christchurch had 24 per cent of New Zealand’s conference market and 42 per cent of the conferences that came from Australia.

Blanchfield said international organisations had approached her about coming to the city, but would not do so without a fully-equipped conference centre. “We have unmet demand for conferencing in Christchurch.” The new centre is due for completion in 2019, and Blanchfield said Christchurch was already bidding for conferences from mid-2020 onwards. “It’s vitally important that it stays on schedule from now on. We don’t want to lose another year’s opportunity,” she said.

The Government originally planned to finish the centre in 2017, and it missed out on its first contract for a conference in 2018 due to fears it would not be finished in time. Blanchfield said international convention delegates spent twice as much as other international visitors, often extended their visit to other parts of the South Island, and were likely to return for holidays.

convention interior

Artists impression if the convention centre interior

Brantley said Woods Bagot architects and Matapopore Charitable Trust designed the building to reflect the South Island landscape. The main entrance, featuring curves reminiscent of Canterbury braided rivers, will open to Oxford Terrace and the Avon River. The Armagh St and Colombo St sides are straighter, holding to the traditional edges of Victoria Square and Cathedral Square, and the restored Lady Isaac building. The plan incorporates hospitality and retail outlets into the Colombo St side of the centre, and space has been set aside for a potential hotel. The Armagh St side will include areas for public use with a view of Victoria Square.

Earthworks on the site are well under way and a main works contractor is expected to be appointed about July. Archaeologists have found “bear grease” hair product, children’s cutlery, and 1840’s pharmaceuticals among other artifacts at the site. “A lot of the stuff we’re finding at the convention centre is relatively early for Christchurch,” Underground Overground Archaeology’s Jessie Garland said. The artifacts were found among cellar walls, a well, and rubbish pits dating back to the mid-19th Century. Garland said archaeological works would not delay earthworks for the convention centre.

Source:

  • The Press

Avon River precinct gets a push

The Canterbury Earthquake Recovery Authority (Cera) yesterday called for expressions of interest on the Avon River precinct – a series of parks along the central-city banks of the river.

Cera’s Christchurch Central Development Unit (CCDU) will manage the process.

CCDU director Warwick Isaacs said a shortlist would be drawn up once expressions were received, and candidates would be invited to submit detailed proposals.

Design proposals close on October 5.

Designs should attract people back to the central city, incorporate Victoria Square as the heart and reflect residents’ desire for green, inviting spaces, Isaacs said.

‘‘It’s an area you can at least have some respite from what will be a construction site for some years, but also to deliver something to people of Christchurch, which isn’t just about businesses and buildings. It’s about mother nature coming back to life as well.’’

He said proposals would have to address the need for fast-tracking work and using multiple contractors, and the values of Ngai Tahu would need to be reflected.

‘‘I wouldn’t be surprised if there’s some international interest in it. It’s quite ground-breaking to be able to do a whole river plan for what will be a newly rebuilt city,’’ he said.

The design project will begin next month, with construction scheduled to begin this summer.

The project will need to be delivered in stages by 2014.

Isaacs hoped work could begin before Christmas.

‘‘That might be a bit too much to ask for, but certainly I’d expect we’ll be full steam into it probably by February,’’ he said. ‘‘If we push the designers too hard we’ll get a less than best design. It’s a big project that’s going to last 100-plus years, so we want to give them as much time as we can while still getting on with the actual physical work.’’

The CCDU identified the Avon River precinct as a priority project when it released the central-city blueprint in July. One side of the river would have an urban feel, with paving and seating areas, and the other would feature bars and cafes.

Source:

  • The Press
  • Marc Greenhill and Michael Wright marc.greenhill@press.co.nz michael.wright@press.co.nz
%d bloggers like this: