News & Thinking
How does the construction and infrastructure sector respond to Covid and plans to regenerate?
Hamish Glenn, Policy Director at Infrastructure New Zealand, New Zealand’s peak infrastructure body, discusses the changes to the industry brought on by Covid and their response to the proposed stimulus plans.
As part of the response to the economic impact of Covid, the Government (and the main opposition party) have both identified infrastructure as one of the key areas for investment that will help to revitalise the economy. Investment in infrastructure is a well-established method of trying to help a country grow its way out of a recession. However with uncertainty over which short term and long term plan will be implemented, due to an upcoming election and New Zealand’s short election cycle, coupled with potential long term supply and labour shortages as a result of the global impact of Covid, the problem may be that rolling out the tried and tested investment in infrastructure policy may not work (and if it does will be a lot more challenging) in this Covid environment.
To help provide an insight into how the industry may respond to the Government’s plans, we asked Hamish Glenn, Policy Director, Infrastructure New Zealand, for his thoughts on some of the key challenges facing the industry.
Commentary by Ed Dunphy, Partner.
At the beginning of July the Government announced an ambitious plan to aid New Zealand’s post-Covid recovery. This included a boost to New Zealand’s infrastructure and construction industries with projected spending of NZ$2.6B, over 150 projects, with the aim of creating or retaining 20,000 jobs. What has the industy’s response been to this initiative and have any contracts been awarded to date?
The industry is very grateful for the additional investment. However the industry is under significant pressure to reduce costs and jobs and is urgently seeking details of what, where and when projects are so they can hold onto skilled employees. While around half of the projects by value have been announced, very few have been started and the vast majority do not have committed timeframes. The result is an industry which has retained staff on the basis of imminent work, and a desire to support their sector and government objectives, but which is losing time and money due to a lack of commissioned and signalled work. Unless clarity over the pipeline is received shortly, infrastructure firms will have to reduce staff, undermining the whole purpose of the initiative and increasing time and costs in the longer term.
The Covid-crisis has hit many engineering and construction firms hard. What advice do you have for these firms?
Central and local government represent 80% of the shovel ready project applications. A lot of these client organisations are under considerable pressure to move at unprecedented speed and in uncertain conditions. To mitigate this risk, clients may need to in-source new skills, and should also be looking at using rapid deployment models (alliances, early contractor involvement etc). Construction and support industries might band together to provide one-stop shop answers to these projects – traditional linear consenting, design, procurement and delivery won’t work in this environment.
With our borders closed and only critical workers being granted visas, does New Zealand have the skilled workforce to resource these new projects?
It is hard to tell without the detail of the projects. New Zealand will always need to import certain specialist skills, however a key focus in selecting projects was to aim for lower complexity, ‘shovel-ready’ projects which should mitigate risks. The earlier project details are known, the better the industry will be placed to gear up for these, especially if they can be rolled into programmes of work to optimise delivery.
The National Leader, Judith Collins announced her plan (should she be elected) to spend NZ$31B on transport and infrastructure projects in Auckland and the upper North Island. What is your view of the proposals?
We are delighted that National has acknowledged the scale of the infrastructure deficit in transport and proposed an ambitious, multi-decade vision to create ‘Australasia’s most dynamic region’. Pleasingly, the plan was not only bold, but also pragmatic. It does not commit to stopping the current Government’s investment programme, with the one clear exception of light rail, and contains an aggressive public transport programme. Avoiding abrupt changes in policy and clearly signalling future direction is extremely important to maintaining a healthy infrastructure industry and enabling a healthy development sector. There is considerable work yet to be done to optimise this plan, for example addressing carbon/climate impacts and integrating with wider spatial plans for housing and jobs, however our chronic transport issues require a bold response, which this plan certainly delivers.
What in your view represents the greatest opportunity and threat for your industry in the next 12 months?
The greatest opportunity is to take the COVID-19 shock as a wake-up call to reset our economy on a more productive, sustainable and inclusive path. Ideally we would set a 30 year strategic plan that has multi-party support, providing certainty of direction to public and private sector investment. The greatest threat to our industry is that we fail to deliver a coherent pipeline of work, that our borders open and we lose a generation of skilled workers to other markets such as Australia.
Hamish Glenn is the Policy Director at Infrastructure New Zealand, the nation’s highly respected peak infrastructure body. He leads research and policy development and has authored a number of reports on global infrastructure systems, including Australia, the UK, USA, Canada, China and Singapore. For more information on the work of New Zealand’s peak infrastructure body, click here.
Disclaimer: The material contained in this document is provided only as an information source, and is correct at the time of writing. The material is a generalised summary of the key issues and is not intended as a substitute for specific professional advice and should not be relied on for such a purpose. Independent professional advice should be obtained before relying on any aspect of this material and we would be happy to assist in this regard.