“Between building projects running late and over budget, to regular announcements of the business failures of builders and sub-contractors; the New Zealand construction industry has frequently been in the media spotlight. This has resulted in the hotel industry having concerns about the construction sector’s ability to resource and complete building projects.
There are two main contributors to the current environment:
- Procurement in the construction sector is all too often based on lowest cost, coupled with the emergence of clients (or their advisors) developing contracts that shift risk from the client to the supply-chain at an inequitable level; and
- The construction sector has not invested in new technologies, training, or grown to the degree it should, therefore resulting in negligible year-on-year productivity gains.
These two factors are interlinked. Due to the prevailing low-margin and high-risk procurement practices, construction sector companies have not been able to build their balance sheets and invest in productivity-lifting initiatives. As a result, firms are too focused job to job and ensuring that their projects are profitable.
Such a short-term view does not lead to companies making long-term strategic decisions and investing in technologies that will lift their productivity and provide them with a competitive edge. This is lamentable, as the global construction sector is fast becoming a high-tech industry with emerging technologies that include: 3D printing, greater drone usage, AI (robots in particular), pre-fabrication, and Building Information Modelling (BIM).
It’s a circular problem. If clients don’t seek innovation and are not willing to pay for it, then the supply chain won’t provide it. If innovation is not embraced and implemented, the construction sector’s productivity will not improve. What then can the Hotel industry do to create greater certainty of receiving a high-quality (in both design and durability contexts) product that is delivered on time and within an agreed budget?
It starts with the procurement process, and with clients taking a longer-term view on the costs associated with the building/addition/refurbishment that they engage the construction sector to produce.
Successful building outcomes require an approach that includes, amongst other things:
- Considering the costs of a delivered building over its life-cycle, not just its Year 0 costs. This can be achieved by encouraging the design team to consider more durable materials and developing systems that reduce a building’s ongoing running costs;
- Engaging your builder at the same time as the design team (architect, engineer, quantity surveyor). A builder brings specialist inputs such as buildability and construction methodologies that can provide cost and/or time savings to the project;
- Challenging your project team (including the builder) to work collaboratively and develop innovative practices and design that will provide you (the client) with added value across the building’s life cycle. An example of this is asking for a BIM-enabled supply-chain that effectively provides you with a second asset at handover, a digital model that you use to run your building with; and
- Ensuring that the designers and builder that you engage are operating on a reasonable margin. This ultimately de-risks the project for the client: the architects and engineers provide enough drawings and details to ensure smooth pricing and construction, while the spectre of contractor (main or sub) failure is reduced.
Those who are practising this approach are typically those who regularly undertake construction projects and who own and manage their buildings for the long term. It need not be limited to this group, the cost of procuring a great construction team is marginally more than engaging one that is not, with the additional cost typically being recovered by the client in the asset’s ongoing running. Setting-up building projects for success benefits all.”
Malcolm Fleming is the chief executive officer of the New Zealand Institute of Building.