Construction - An industry overstretched?

By Steve Bohling August 04, 2017 Trade Focus

Is the construction industry capable of cracking on at the current breakneck speed? Or are cracks starting to appear? Steve Bohling reports.

Digging into and around the New Zealand construction industry to gauge the state of the nation when it comes to our readers’ trade customers, it’s pretty clear, pretty quickly that all is not absolutely hunky dory.

You will have read in these pages several times already the last few years about the lack of skilled workers, but that issue is now extending upwards into the realms of building inspection.

Then too the pressure is on lead contractors faced with rising labour costs and ever-tighter margins, but less willing bank managers.

What about product substitution and assurance?

What can be done? And is the industry simply at capacity? Who’s holding the straw that might break the camel’s back?

SUBSTITUTE MYSELF FOR HIM

On to the builders’ perspective and Grant Florence, CEO of NZCB. Does NZCB have an official view on product substitution or product certification?

“We don’t promote product substitution – we are fairly clear with our members showing them the dangers, particularly if the product is substituting for a product that’s off the back of a truck that’s come from we-don’t-know-where.

“Our view in general around that is just that the landscape around product and what’s good and what’s bad and where the liability sits is so complicated it’s not funny.”

If Grant Florence were to pick out one word to describe the current Building Code framework I think it’d be “confusion”.

What’s the best way to reduce this confusion? “I’ve got a view on that and it’s a radical view – and that’s just wipe the slate and start again!

“But the reality around that is that’s not going to happen. And I understand the reality of trying to put in border controls for product is just not realistic.

“So I guess I can only carry on the promotion around a more nimble accreditation sector. Or even just some simplification and promotion of the process.

“I mean the builders end up getting caught in the stack where there’s a product specified by the architect that’s not available. What do I do?

“You know, once I substitute it, I own it. I own the liability.”

Does Grant Florence think the industry is overstretched?

“I do. I think that current capability to meet demand has got to its maximum capacity.”

PLEASE SIR, CAN I HAVE SOME MORE?

BCITO CEO, Warwick Quinn, is realistic about the skills shortage. He, his team and other training providers are doing their best to funnel through as many apprentices as they can.

But, just to stand still, the New Zealand construction industry needs 60-65,000 more workers over the next five years, across administration right through to the professionals and the engineers.

Of that shortfall, says Quinn, about 28-30,000 will need to be trade focussed – trade qualified with a Level 4 or better qualification.

BCITO on its own should be able to contribute 12,500-13,000 completed apprenticeships over that five year period but that’s clearly not enough.

Is there a solution towards mitigating this shortfall?

Warwick Quinn says there may be and that exploration is already in train around recognising skills rather than simply shooting for more qualifications.

Specialised skills are what he’s talking about, something that reflects the state of the industry today rather than sticking to a 25 year-old qualification system.

Take a young builder who works for a firm that specialises in cladding. Under the current framework, cladding is just part of a broader carpentry qualification.

“As an ITO we can’t take them on because they won’t complete the full scope of work and we get penalised for it. So there’s no incentive for us to go down that route.

“So what we are saying to Government as one of our strategies is let us recognise that skill set in its own right.”

Armed with approval to explore the idea from NZQA and TEC, BCITO is currently looking around the various qualifications and trades within its portfolio and defining which parts are specialised and may be recognised formally with a view to workers building up those credentials over time.

“We’ve called it a kind of hop-on, hop-off scheme – it is what you might call micro credentials. Stackable credentials is another term.”

The key thing here is that the young builder who’s putting on exterior cladding or whatever can have those particular skills formally recognised within the NZQA framework.

Says Warwick Quinn: “I think that’s much more of a skills-based education framework than a purely qualifications one. If you think about it qualifications are really for the individual but skills are for the employer so it helps align those two perspectives a bit better.”

In terms of progress on this “stackable” skills-based approach, the BCITO boss is keeping mum at this point about exactly which industry sectors are the organisation’s key targets but admits that the concept seems to have gained traction in the manufacturing type sectors – carpentry firms, aluminium joinery for example.

In these sorts of environments, where people progress around specific work stations, it would make good sense for the worker to be able to master individual skill sets which would then contribute to an overall qualification over a four-year period.

“Our challenge now is to prove the model,” says Warwick Quinn. But above all, he says this new approach needs industry buy-in: “We need to reflect what’s happening, not create something that doesn’t exist and undermine those qualifications that don’t need touching.

“There are plenty of [qualifications] that are absolutely fine but there are others that don’t quite align. So we want to service a market that’s not being serviced – not undermine our existing qualification framework that works well for those firms that need it.

“We think it’s a great way of getting people on the first rung of the ladder, getting them into the system. And then we’ve got an alignment between employer needs and qualifications.”

Warwick Quinn says the “stackable” approach could net perhaps 5,000-6,000 additional workers with recognised skillsets. The approach could also be applied to LBPs, who also have specific areas of practice.

And, whilst that doesn’t solve the skills shortfall, it’s a start, certainly better than doing nothing, according to Warwick Quinn.

“I think if we don’t do something radical like this then we’re going to continue to suffer with always having a shortage, based on qualifications alone.”

In that case, employers may start to rely more and more on immigration to fill the void. There’s also a danger in that scenario, says Quinn: “We don’t want to send a message to employers to say to them whenever it gets tough we’ll just relax the rules because there’s no incentive on them to train at all then.”

The other danger is employers increasingly relying on poaching skilled workers from competitors rather than training themselves, something that a more aligned training framework could help moderate.

There is way more than this happening behind the scenes in the education/apprenticeship space but we have no more room, so do watch this space…

ARE THE GAMEKEEPERS TURNING POACHER?

The issue of skills shortage isn’t restricted to the sub-trades. I’ve heard that building inspectors have been switching from their gamekeeper roles, to more of a poacher role, sometimes with group home builders.

Nick Hill, CEO of BOINZ, makes no bones about the truth of this, saying: “I think it would be fair to say that there’s definitely a skills shortage. And when you look at the building surveying market they are the most skilled practitioners in that building construction area in terms of knowledge. So their skill sets are in demand.

“So, in a market that’s on an upswing, you can expect a certain amount of skill transference from the public to the private sector.”

Is money at the root of this changing of camps? He responds: “I have sadly come to the conclusion that, particularly in the Council environment, the political pressure on operations doesn’t allow for sensible commercial decisions to be made around skill retention and skill recruitment.”

Ongoing training, a must in this sort of fast-paced environment, is also falling short. “The market is moving so fast in the building construction products sector in New Zealand as a result of global impacts that our people need a very strong training commitment from their employers,” he says, adding this isn’t always the case.

As a result says Nick Hill, he’s seeing “very, very good people” leaving, thereby creating a void which the councils in particular struggle to fill.

Why? “Because they are hamstrung by archaic level pay scales that don’t meet the commercial realities and the customer expectations.”

Losing elevated skill sets would obviously impact on the supervision of what’s being built?

These people, says Hill in no uncertain terms, represent “the most significant consumer protection in the built industry.”

The trouble is, he adds: “At a political level this is not being understood. And hence you start getting gaps in the system. Gaps in the system bring risk. And risk brings unwanted costs to the ratepayer.”

Can he quantify the scale of this particular gap? “What I’m seeing now is there’s probably anywhere between a 5% and 10% shortfall, if not moving towards 15% and maybe 20% in some of the larger metropolitan areas that have heightened growth.”

In my simplistic way I wonder about product substitution in the context of a shortage of building inspectors. Does Nick Hill have concerns?

Straight out he says: “Yes we do. We definitely have concerns, particularly in the critical building environments of steel structure, cladding and fire.

“Those three areas are critical in terms of specified products and those products need to be certified independently by a third party.

“No-no one should rely on a manufacturer’s data sheet or specification – those products are too critical to go on-site without independent third party certification.”

What is the reality of this situation? “What we’re seeing unfortunately is that, particularly at the large construction sites around the country, we’re seeing the large construction firms looking to substitute and bypass the certification requirements on the basis that they believe that their sources are robust enough.

“But unless the product that they’re bringing in is certified at the mill and through a chain of custody process, from mill to site, then the consumer actually has no guarantee that what they thought they were buying is actually what they got.”

Without wanting to put words in his mouth, I ask Nick Hill are we looking at another systemic failure? Are we just teetering on the brink of something?

Without hesitation he responds: “The signs are all there. And unless we put in the right processes to beef up the building compliance environment at local government level then ... I think we won’t necessarily see the elements of comfort that we should see to avoid systemic building issues.”

Is there a way forward that doesn’t lead to a cliff?

“Well I believe that there’s a strong need for Government to actually accept that the Building Consent Authorities need to be self-funded to achieve their role and necessarily outside the influence of the politicians within local government.

“The issue is so critical it’s of national importance. It cannot be played out through council politics. The investment needs to be appropriate, wholesome and for the right outcomes and it needs to be user pays.

“Unfortunately what we’re getting is flag waving by developers. We’re getting flag waving by construction firms that the process is too slow. The reality is that they are not slow... The information that is coming in is insufficient or needs to be verified.

“And so particularly at the design level there’s a need for a higher level of education around Building Code requirements. And at the construction level there needs to be a higher commitment to site management.

“In other words the span of control of site management needs to be reduced significantly. So you don’t have as in the case of Auckland a site manager running 17 houses with a very high percentage of labour-only instruction input rather than technical trained input.”

 

DON’T BLAME THE DEVELOPERS

Representing the developers is Connal Townsend, CEO of the Property Council, who informs me it’s a tale of two markets acting quite differently.

“Part of the reason for the downturn is of course banks are being very careful with their exposure to residential development at the moment so they are obviously throttling back a little bit on that. But the commercial world is still going extremely strongly.”

Talking of money, what is his attitude towards product substitution?

The “ultimate dream” for a commercial property developer, he says with a trace of humour, is to have “a completely open market where we can parallel import all sorts of different ranges of product to drive the price down. And in return for that we demand absolute certainty for the highest quality – now that can be a challenge!”

Joking aside, alongside labour costs, the price of land and compliance costs, Connal Townsend ranks the cost of building materials as “very high”.

To the point of product substitution? “The last thing a developer wants is to think that they’re going to put in a building product was going to hurt someone.

“If you’re a city council like the Royal Borough of Chelsea I guess you just need to save money for your ratepayers … But if you’re a listed tradeable property entity … the quality of that building is paramount because that’s your brand.”

He will admit however that not all decisions are driven from the top down and that his members may be “nervous” about what happens further along the value chain.

“How much control do they have at the very lowest level of some sub-somebody who thinks ‘aw I can make a small bit of margin here if I do a quick substitution - no one will know’?

“No reflection on subbies – they’re wonderful – but you know the whole value chain is only as strong as the weakest link.”

IT IS THE SUBBIES’ TURN TO RULE THE ROOST?

With Connal Townsend talking of banks throttling back, what’s the outlook of our resident financial guru, Alan Johnston, GM at CreditWorks?

Is there an element of “stretch” going on? Yes but not perhaps where one would traditionally expect, he says.

Amid tales of head contractors going for jobs armed with nil margins and facing sunset clauses the word is that the worm has turned and at the moment, it’s former whipping boys the sub-contractors who are in the driving seat.

“The tide’s turned a little bit in favour of subcontractors. And you know now particularly with the Construction Contracts Act protecting them getting paid on time and also the new retentions rules, you’ve got quite a few forces at play that are in their favour.”

Thanks to the banks and the new retention regime, main contractors are not only faced with super tight margins and possibly having to use their suppliers as funders, says Alan Johnston, but they’re also swallowing rising labour costs.

As a result, he says: “It’s our view that we’re going to see more failures in the building sector, certainly over the next 6-18 months.

“It’s all looking rather sad – not only are there not enough builders to build everything but at the same time those lead contractors that are building are getting very little out of it.

“It’s the head contracting type firms that are going to find a real issue with cash flow and it’s not through bad business practices, but it’s such a juggling game at the moment to try and find the money.

“Too often in this type of environment people assume because there’s work out there for anybody who’s any good in the building market then that translates to them getting paid and being able to pay their bills. So there is a bit of a false sense of security in this environment.”

As a result, says Alan Johnston: “There are only two reasons exposure goes up – one because people have got more work or secondly because they’re not paying their bills.”

So the watchword would be? “If there’s one thing that we’ve been saying to those that have been listening, it’s be very vigilant and be mindful that there isn’t a lot of working capital available and therefore don’t allow yourself to be stretched with the perception of making a lot of money.

“But if there’s one message that just keeps coming through now it’s that it ain’t profit till it’s paid for.

"So don’t get excited about sales opportunities – get excited when you get paid!”

 


Infrastructure – removing the handbrake

Last month’s announcements of Government investment should mean housing infrastructure will become less of a handbrake to the further development of New Zealand cities.

First came the Government’s launch of its $1 billion Housing Infrastructure Fund (HIF) which will deliver 60,000 houses across the fastest growing population centres over the next 10 years.

The HIF funding will be allocated across nine projects in five different council areas: Auckland; Hamilton; Waikato; Tauranga; and Queenstown.

Later in July came additional plans to speed up infrastructural development with the Government co-investing up to $600 million alongside local councils and private investors in network infrastructure for big new housing developments.

The vehicle for this is to be ultra-fast broadband company, Crown Fibre Holdings (CFH) which will be re-purposed and re-named Crown Infrastructure Partners (CIP).

CFH already has skills and experience acquired from the ultra-fast broadband rollout and will set up companies designated Special Purpose Vehicles to build and own new trunk infrastructure for housing developments.

Its return will be “dedicated long term revenue streams” from councils through targeted rates and volumetric charges levied at new residents.

Councils will have the option of buying back the infrastructure at some point in the future, but won’t have to commit to doing so.

Two of the earliest projects to be assessed by CIP for investment will be large Auckland Council projects of 5,500 homes in Wainui to the north of Auckland, and 17,800 homes across Pukekohe, Paerata and Drury to the south of the city.

These two projects did not receive HIF funding as they did not meet the specific criteria.

If these projects are completed, it is expected that combined they will open up sufficient land for the construction of 23,300 additional houses, taking total housing capacity in these areas to 28,300.

The total infrastructure investment being sought is $588 million.

More detail is available at the shortened URL below.

http://bit.ly/2uuDww6

 


Traceability on building products – the time has come

How to ensure you’re using the right building materials and products? Gary Hartley of GS1 New Zealand (www.gs1nz.org) offers one solution.

New Zealand may have a major problem with the use of deficient materials in building construction.

We’re not alone: the UK just had a big wake-up call on related issues with the horrendous fire in London’s Grenfell Tower.

But are we doing enough to address this issue here, especially as New Zealand goes deeper into a home building boom?

Research by BRANZ (www.branz.co.nz) would suggest not.

Its recently published research report Electronic Traceability of New Zealand Construction Products: Feasibility and Opportunities, puts the case for establishing a sector-wide system for authentication of building materials, and for information sharing on their origins and use.

The report estimates annual costs from building with Non-Conforming Products (NCPs) – materials that are deficient or incorrectly used under the New Zealand Building Code. – ranging from a conservative $95 million on house building alone, to $232 million on all building (this figure derived from similar Australian findings).

Those are costs incurred with the need to repair or replace NCPs that can appear in every category – steel, timber, cladding systems, window glass, plumbing components and so on.

The issues are in plain view through periodic news reporting on sub-strength construction steel, weak domestic drain piping, high incidences of failure in building inspections and more.

The issues are certainly nothing new to any Kiwi who has owned a leaky home.

NCP issues arise from the deliberate or inadvertent substitution of materials on construction sites and from ignorance about the qualities of particular products and their proper use.

 

HOW TO ESTABLISH AN AUDIT TRAIL?

Fixing the problem is far from easy given the vast choice of materials available, New Zealand’s open border to imports and the complexity of many building projects.

In the face of all this, BRANZ is cultivating the idea of a national traceability system which would hold standardised data on as many products as possible. This information would be widely accessible to architects, builders, merchants, consent authorities and building owners.

The system would, of course, be electronic and so enable the authentication (or otherwise) of every product by the person responsible scanning its barcode or electronic chip using a smartphone app as that product arrives at the building site.

A unique identifier on each product will link it to standardised data in a database – data that includes product specifications, source and details of manufacture, and test results and other assurance information relevant to conformance with the New Zealand Building Code.

The system would, in concept at least, prevent or limit on-site substitution with NCPs. Where such is found – perhaps already used on a building – everyone would have the means to trace its source and understand its deficiencies.

BRANZ foresees “a clear audit trail of which organisations have undertaken what tests and activities to check conformance” with the Building Code.

It also highlights potential for the database to become an information hub for the design and later consenting of buildings: one source of truth from which builders and product merchants would also draw in the course of construction.

“The traceability system would be a great step towards ensuring the right building materials get on site ... the focus can go more into making sure they are properly selected at the design stage and then properly applied on the job,” says David Dowdell, one of the BRANZ report’s authors.

The concept, he says, will obviously require development and testing and that will depend on the will of stakeholders.

 

WHAT BUILDING BLOCKS DO WE ALREADY HAVE?

BRANZ is clear that the construction sector already has some of the building blocks at its fingertips, most notably GS1-standard product identifiers (principally Global Trade Identification Numbers) and the GS1-enabled National Product Catalogue (NPC – see www.gs1nz.org/services/npc/).

NPC is an electronic platform for creating synchronised databases with an unlimited number of participants and already has growing use among building product manufacturers and merchants in New Zealand for inventory and supply chain management.

In the BRANZ’s view, the NPC could become the basis for exactly the type of product traceability system it has in mind.

And the will of stakeholders?

In 2015, BRANZ sought opinions on the need for a centralised system.

Of the 307 who responded, 80% were in favour and generally they saw Building Code conformance as the major driver for greater traceability.

The BRANZ research conservatively estimates that a system based on the GS1 building blocks will have a net return of at least $23 million annually, far exceeding its cost of implementation.

Across at the Building Industry Federation (http://bifnz.co.nz/), Bruce Kohn is definitely supportive of the BRANZ concept and of making greater use of GS1 standards for traceability.

He foresees the sector and regulatory agencies moving further down the traceability path as more companies take up NPC to strengthen their supply chain relationships – and also to meet rising demand for information of products and conformance.

Let’s hope New Zealand does learn from experience – here and overseas – and moves along the path more rapidly from now.

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