Construction trends 2021

Following another tumultuous year for New Zealand’s construction and infrastructure sector, MinterEllisonRuddWatts’ construction partners outline the trends they are seeing and the hot topics the sector is grappling with as it prepares to welcome 2022.

Health and safety assessments at the heart of ‘no jab, no access’ debate

If 2020 was the year of the Covid-19 virus, it’s fair to say that 2021 has been the year of the vaccine.  Janine Stewart, Division Co-Leader and Partner in our Construction disputes team, comments that the industry has seen the situation evolve rapidly, first with the availability of vaccines, and then with the mandates that followed.

“Early in New Zealand’s response to the Covid-19 pandemic, we were being asked for advice focused on suspension and change of law queries in a contractual context.  These issues are still relevant, however this year the question of whether a principal or contractor can implement a ‘no jab, no access’ policy has been front of mind for our clients’.”

And the answer is not clear cut.

“Whether you can restrict access to allow only vaccinated people is much clearer where Government-imposed mandates are in place.  However, even in the absence of mandates, a principal is still a person conducting a business or undertaking (PCBU) – and as such, is empowered to make their own health and safety risk assessment.”

In the absence of mandates, a principal is still a person conducting a business or undertaking (PCBU) – and as such, is empowered to make their own health and safety risk assessment.

So, what does a health and safety risk assessment involve?  As Janine explains, a careful assessment of a range of factors is needed.

“Early in the August lockdown, some legal advisors were recommending that for construction site risk assessments, parties should engage expert advice on health risks, which should consider the spread of the virus against operational and functional aspects of a construction site. WorkSafe has since introduced criteria to assist in the assessment to be undertaken by PCBUs, which the Government is translating into a ‘Vaccination Assessment Tool’.  The Tool is expected to be formalised in the coming weeks and is designed to simplify the risk assessment for organisations.  Principals and other PCBUs also need to consult with the contractor on site – as the other PCBU – and ideally agree a protocol between them.”

The assessment requires open discussion.  In practice, a ‘no jab, no access’ policy developed following a PCBU assessment is easier to navigate when assessing sensitive sites (such as health, aged care, or education facilities).

“Looking ahead to 2022, I see compliance monitoring as a real issue for the sector.  The vaccine passes have provided some clarity, however there is still an enormous reliance on PCBUs to check and validate the passes.  We anticipate the next focus will be the rights and obligations of the parties to existing construction contracts where ‘no jab, no access’ policies are implemented.”

Achieving project success in a risky climate

In the transactional space, Partner and Division Co-Leader Travis Tomlinson has seen a noticeable shift in tendering and procurement approaches and contractual risk allocations. Parties are delivering projects in a very different environment to 18 months ago – and contracting parties, including their internal governance arrangements, need to be equipped for that.

Travis considers the industry’s approach in 2020 was arguably reactive – reflecting back to 2020, he says that the reaction was generally (and understandably) that “COVID has arrived, what do we do now?”. This year, Travis has seen the industry be more proactive in their thinking. Parties have placed much greater emphasis during their pre-contractual processes (such as procurement and tendering planning, and pricing / tender responses) to consider how project success can be achieved for all in light of the very real, and significant, risks being faced across the industry.

Travis considers that one of the greatest focusses throughout the year has been on the supply chain and labour market – including the availability of resource and materials, and the cost of it. The challenges have been real, and they haven’t been easy for anyone to address nor to be solely responsible for. Procurement processes, and contracts and their risk allocations, have consequently needed to respond to these circumstances.

Preconstruction procurement processes; early procurement activities for long lead items; and cost escalation clauses are some examples of these risk mitigation measures within a project. But there has also been a greater governance oversight on projects – those in governance roles are focussing on the risks of procuring and delivering during a pandemic and receiving real-time assurances, including from external advisors, that risks have been identified and are being managed. If they haven’t, then hard decisions are being made – such as to pull projects or tenders.

When Covid-19 arrived on our shores, our industry necessarily needed to react. What’s happening now is a more collaborative, forward-looking approach. Contracting parties are asking, ‘how can we achieve success for all?’

When Covid-19 arrived on our shores, our industry necessarily needed to react. What’s happening now is a more collaborative, forward-looking approach. Contracting parties are asking, ‘how can we achieve success for all?

Travis considers that many challenges encountered this year will continue throughout 2022. “The construction and infrastructure sectors remain very active and there does not seem to be any immediate return to normal on things like supply chain risk”. He also thinks a particular area of focus will be on vaccination requirements for sites. He thinks “no jab, no access” clauses will feature heavily in project contracts as principals and contractors look to keep their staff, occupants and communities safe from transmission.

Changing approach to project delivery to better support major developments

Throughout 2021, our transactional team has advised on projects that have been major in terms of their scale, importance for the client, and significance for New Zealand’s broader economy.  The contracts are necessarily bespoke – although often underpinned through an industry attachment to a standard form.  But Partner Mark Crosbie has seen a reorientation of the focus of these contracts.

“In the past year, we’ve seen a move away from the substantial special conditions that was receiving industry criticism, particularly from contractors. Instead, there has been a reduction of those front-end legal terms, but with corresponding increase in and focus on the project delivery documents. The approach – predicated on clarity of process, reduction of uncertainty, and management of risk – has significant benefits.  One small example is the inclusion of a risk matrix which clarifies the allocation of the risk between the parties.

“With this shift in contract approach, we have also been actively exploring with clients a broader tripartite approach to project establishment and management. There has not only been a refocussing of the contract itself, but also of the supporting project governance and management structures and processes, and the behavioural approach of the parties.”

With this shift in contract approach, we have also been actively exploring with clients a broader tripartite approach to project establishment and management.

Technology is also assisting in surety of delivery of the projects, from design, through to on-site delivery, quality, safety, administration, and reporting.  This has translated into some good wins and adaptations of documents and behaviours on projects with the clarity being welcomed by all project participants.

“Having said that,” Mark comments, “there’s still a level of organisational inertia from some industry participants resistant to change, content with their long-held way of doing things, and not reflective of best practice..  And in the current hot market, with the current resource constraints, there is little incentive for them to change.  I think one catalyst for change may be when those parties become involved as defendants in the work we do on the litigation side of our construction practice.”

Sustainable practices coming to the fore

There is an increasing focus on the importance of sustainability and achieving broader environmental, social and governance outcomes in New Zealand’s construction and infrastructure sector. Partner Scott Thompson says sustainability is emerging as a key driver for 2022, influencing what infrastructure is built and how it is delivered.  “As a starting point, at a systems-level the Government has an infrastructure mandate in play that will see assets delivered that, by their nature, can deliver broader outcomes.   As an example, the directive that 90% of all electricity produced must come from renewable sources by 2025 will drive sustainability in the energy sector.  This mandate, coupled with the Government’s recently announced emissions reductions plans, will drive changes in the construction sector, creating the opportunity for the sector to make a significant positive impact on the country’s carbon footprint.  With the built environment contributing up to 20% of New Zealand’s GHG emissions and construction and demolition waste making up between 40% and 50% of all waste going to landfill, the sector has a big role to play in achieving New Zealand’s sustainability targets,” says Scott.

With the built environment contributing up to 20% of New Zealand’s GHG emissions and construction and demolition waste making up between 40% and 50% of all waste going to landfill, the sector has a big role to play in achieving New Zealand’s sustainability targets.

There has also been the emergence of targeted initiatives, such as The Chancery Lane Project (TCLP) (which has created, among others, a suite of construction clauses aimed at reducing the environmental impacts of construction and infrastructure), which Scott is spearheading the introduction of in New Zealand.

“The benefit of TCLP is that it allows contracting parties to set their own sustainability goals for construction projects, that sit outside the political landscape. The key driver for successful implementation of the construction clauses drafted by TCLP will be to consider how they can deliver an organisation’s sustainability goals at the very inception of a project. Consideration must be given to how a project is to be built, and the tools that will be used to help mitigate its environmental impact, in terms of the materials used, its physical construction, and the operation of the asset once built.

“In 2022, we expect more discussion with our clients, industry bodies and Government agencies around what TCLP has to offer, and how all participants can incorporate these types of provisions in their contracts to achieve broader outcomes in the construction and infrastructure sectors.”

While there is a first mover advantage currently, at some point all organisations’ will be compelled to incorporate sustainable objectives into their business models. Scott says a useful analogy is the EDI space.

“Five to 10 years ago, those organisations who had built a culture around diversity and inclusion and gave it due recognition, benefited from a branding perspective because not all of their competitors were as far along on the EDI journey as them. Obviously, society has matured since then and it is a basic precursor to the way that we do business and run our organisations.  We see sustainability and broader outcomes following this path, with them becoming an everyday consideration for the construction and infrastructure sector.”

Disputes are on the rise

Turning to disputes, 2021 has been a huge year with Partner Stephen Price due to the uncertainty of 2020 flowing through to create a surge in litigation and disputes advice.

“In my nearly 30 years of practice, I’ve never seen the disputes space so busy. The lack of clarity as to what can and cannot be done on site, both in terms of the health and safety issues and the impact of the various alert level restrictions, coupled with a changing definition of essential services has led to a fraught situation in many cases,” says Stephen.

“When major infrastructure projects that are fundamental to New Zealand do not necessarily fit within the definition of essential services, it creates significant issues.”

The indirect consequences of the uncertain pandemic landscape have led to a rise in disputes, as parties grapple with complex points of contention.

“What I am seeing is more disputes around the risks attached to programming disruption, material supply chain issues, resourcing constraints, and overseas logistical issues.  I have navigated the full spectrum of these issues in the complex litigation I have advised on this year.”

The trend in complex litigation and latent building defects continues, with more claims against product supplies and manufacturers or other participants in the industry.  While it was common to see court resources absorbed by leaky building litigation, the peak of these disputes is well past.

“What I am now seeing are numerous trials being scheduled for three to six months in the High Court – a trend that will push the resource by years.”

Compounding matters, what was said to be unforeseeable in 2020 may not be in 2021 and beyond.

“There are some very real and complex issues rooted in how we analyse foreseeability of risks eventuating in this uncertain, pandemic climate, particularly as new Covid-19 variants emerge.”

There are some very real and complex issues rooted in how we analyse foreseeability of risks eventuating in this uncertain, pandemic climate, particularly as new Covid-19 variants emerge.

Shifts in systems and structures to support broader outcomes

Sitting on the board of the New Zealand Infrastructure Commission, Te Waihanga, Partner Sarah Sinclair understands how the sector has changed its approach to delivering infrastructure in New Zealand.

“Quality infrastructure enables people to thrive –warm homes, transport to jobs and access to healthcare – and it shapes New Zealand’s economy. The shift from considering individual projects to outcomes – focussed infrastructure programmes, and to creating an inclusive and sustainable economy, is helping the sector evolve,” says Sarah.

“There’s an enormous opportunity to propel the country’s infrastructure forward for the benefit of communities. InfraCom has done a tremendous job in developing the Infrastructure Strategy for Aotearoa New Zealand which recognises the system challenges and opportunities that will really shift the dial for New Zealand.

“A clear pipeline of infrastructure projects is critical and needs to remain a key focus. A robust trusted pipeline is required to make New Zealand an attractive destination for the human and financial capital needed to deliver the ambitious programme to overcome our well-recognised infrastructure deficit.”

The Government’s proposed infrastructure programme to accelerate housing, improve water quality, reform resource management and create more transport options – within a framework of broader outcomes – can provide this strong pipeline for the infrastructure sector. However, the significant challenges of delays, disrupted supply chains and a pressured workforce are evident and need to be addressed head on.

“Partnerships are vital to achieve the country’s infrastructure ambitions. Each of the major infrastructure programmes in our country’s sights – including three waters, transport, housing and health – requires central and local government to work together, in partnership with mana whenua, and clearly articulated opportunities for the private sector,” says Sarah.

Partnerships are vital to achieve the country’s infrastructure ambitions. The major infrastructure programmes in our country’s sights require central and local government to work together, in partnership with mana whenua.

“Clarity will enable the sector to prioritise, plan and invest to enable delivery on the social, environmental and economic outcomes demanded by communities.”

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