“We have much to learn here about Australia’s large transport construction programmes.”
12 December 2023
Recently I had the privilege of delivering the keynote speech to the NZ Rail 2023 conference.
The focus of my speech is what I regard as a long-term infrastructure delivery crisis facing New Zealand.
I don’t just want to complain about that, but I do have some thoughts on how to fix it for a more reliable, skilled and cheaper future.
My views and solutions are personal ones in no way connected to my City Rail Link role, but my message was aimed directly at all of the country politicians and the industry.
There are three key points, in my view, why I think it is essential to look at the bigger picture:
We don’t have a construction sector available that has the capacity or capability to deliver what is required
We have a very high and increasing cost base
We need a reset
Extreme weather, floods and cyclones, meant a pretty tough 2023 for heavy infrastructure. All that on the back of New Zealand facing a huge, almost unaffordable ($90bn estimate) infrastructure deficit.
In spite of the efforts from the Infrastructure Commission and others, little concrete progress has been made at addressing these challenges. When I talk of progress, I don’t mean business cases or announcements but projects that are actually being put out to the industry to tender.
Time ticks on and the country is still debating which projects we need first.
My plea, and it is one I think we all need to make with urgency to the Government and its agencies, is that this is a crisis that needs a plan. Our children will mark us harshly unless we focus on addressing it. It will take multiple periods of governments to resolve, so political by-partisanship is required.
At the heart of those challenges, in my view, is New Zealand’s unwelcome international standing as the world’s most expensive country to build big transport projects like the City Rail Link.
Research by the Transit Costs Project, a private research company attached to New York University’s Marron Institute of Urban Management, doesn’t make pleasant reading: the cost per kilometre for building a “metro” or rapid transit rail line in New Zealand is US$922.37 million - this is an estimate of the cost of the CRL. In the US, where costs are also regarded as expensive, it’s a third less, at US$601.85m/km. In Australia, it’s only US$321.43m/km, almost two-thirds less than here.
Many other countries build transit lines for around US$100m/km, more than nine times less than New Zealand.
There are two big parts that need resolving - industry capability and affordability.
My impression since I returned home in 2018 is the big/heavy construction sector has gone backwards in terms of capacity and capability since I left in 1999. We still have some great people and good companies - just not enough of them!
Improving the industry so that it has the ability to deliver the critical infrastructure needed over the next 20 years starts with three things: profitable companies, a skilled workforce, and experienced knowledgeable clients.
Being more profitable needs a major reset about the forms and terms of contract on our big projects. It seems to me that some of the current contract terms are unfair and iniquitous. This leads to one outcome – a bad one! Inappropriate risk allocation causes major players to leave the market or to not even bother to enter it in the first place. Being asked to bid on risks that you have no ability to manage means you will need to price them expensively. The bottom line is that it ends up costing New Zealand a lot more in the long run.
A skilled workforce starts by growing organically on the back of ongoing great experience. The current approach of having large international contractors come to do one job and then leave is incredibly inefficient and, again, New Zealand pays a large premium for this. At CRL, when our tunnelling was finished, the overseas companies left and they took 300 highly skilled workers with them. If we had a pipeline, then I am sure some of these firms would invest long term. I would hope also that the local market would grow as well.
An agreed bi-partisan committed medium term major infrastructure pipeline would be a huge step to ensuring we move towards having a mature and profitable heavy construction sector able to supply the services New Zealand needs. A pipeline will encourage the development of a more skilled, experienced workforce and do a lot to keeping those workers here.
My third observation relates to experienced and knowledgeable clients for the industry.
Experienced and knowledgeable clients are able to make wise decisions about scope, contract forms, risk allocation and also move to resolve disputes quickly. Inexperienced clients end up being too reliant on consultants and lawyers who have little incentive to minimise costs.
I have 20 years experience working on the other side of the Tasman and we have much to learn here about Australia’s large transport construction programmes. The more experienced State Governments in Australia share the risks with the contractors, so the relationships evolve and there are joint expectations of what will happen.
Over here, by contrast, the usual approach has been to load risk on to the contractor, even when it’s unrelated to their work. One example is contractors being required to carry the risk for “below ground” events, even when they don’t know the local geology. Contractors either accept the risk and its potential impact on company profitability, or they charge a higher price.
I believe Government agencies need to collaborate and share risk with contractors. An agreed pipeline of work will help grow client-side expertise so that it has the capability and confidence to work with construction partners and drive down costs.
Just look at Melbourne’s programme to replace level crossings. They started with 25, and now they’re up to a hundred. They have alliances with the contractors, so they gain and then retain experience, and everyone saves money. You can get your costs down if the work is not one-off and that’s critical for developing a skilled workforce.
New Zealand’s goal should be similar. These are long-standing issues. I believe that If New Zealand is to have any chance of addressing the infrastructure deficit and build better, we will need a complete reset.