Risky business

The voluntary administration of Arrow International (NZ) announced recently will impact not just on the employees of the company and its clients, but the wider network of contractors and subcontractors who supported its construction projects.

Civil Contractors New Zealand chief executive, Peter Silcock, says Arrow’s collapse was yet another demonstration of what is wrong with the construction industry in New Zealand at present, and unless the root causes were dealt with it would continue to be a major issue.
“Once again, this is about attribution of risk. Arrow is one of New Zealand’s top vertical construction companies and it’s a real shame to see a well-respected player exit the market. We need to see a more equitable distribution of risk and a more collaborative approach.”
Peter says times when there is a lot of work on could be extremely difficult for construction companies, who manage complex networks of subcontractors
and suppliers.
“We need a more mature relationship between clients and contractors. Part of the issue is clients repeatedly going for lowest price but wanting a gold-plated outcome.
“That’s fuelling incessant litigation when the budget just won’t stretch to cover costs.”
With fewer players in the industry to take on the current workload this was likely to exacerbate the issue.
Arrow Construction’s announcement of voluntary liquidation followed the collapse of other major construction companies, including Ebert Construction in August 2018 and Corbel Construction last December.
Peter says despite improved protection of retentions for sub-contractors, it was “extremely disappointing” that many who had been involved in Ebert’s work were still out of pocket, with disused cranes still standing next to abandoned work sites.

RMBA Launches guidelines to manage risk
Registered Master Builders has launched its Lead Contractor Guidelines to help the building and construction sector better manage risk.
The guidelines were launched at the recent “all-of-sector” Constructive Forum, which was held in Wellington last year – just weeks after another high-profile collapse in the industry.
“It is down to us to ensure we understand the risk we are taking on when we sign contracts, and our guidelines will help the sector do this,” says Registered Master Builders chief executive David Kelly.
“The Constructive Forum brought the entire sector together, with Government, to not just discuss the issues, but to provide solutions about what we can do to change. It could not have been timelier.”
Registered Master Builders presented a survey of over 30 leading CEOs and senior managers from the sector, which found more equitable risk allocation in contracts to be the most critical issue for industry transformation.
“Understanding risk must become mandatory for both lead and sub-contractors. This means demanding we are given the time and information we need to get things right. It also means we need to say no and push back on unfair terms and conditions.
“We will continue to update our guidelines regularly and make them available – we urge the sector to use them. We will also be organising workshops in the main centres and working with the Society of Construction Law to deliver panel sessions to raise awareness about understanding risk”.
David says there was strong alignment from all parties on what the sector can do to change.
“There were some robust discussions about the failings of the competitive procurement model. We need to move to a relationship model, in which we are not focused on working with the lowest price contractors, but the ones which will be the best long-term partners. The race to the bottom means no one wins.
“We need long-term thinking to understand our pipeline so we can give certainty to these relationships beyond the first project. This means building trust between the key parties, and trying to move away from seeing each other as competitors.”

The guidelines were developed by the Vertical Construction Leader’s Group, which came out of the first Constructive Forum in 2016 and is overseen by RMBA.
The group includes the CEOs of New Zealand’s most prolific commercial construction companies, and advocates on a number of broader policy issues, including risk transfer, procurement, KiwiBuild, and retentions.