Boom time for infrastructure
Fletcher Construction’s chief executive is upbeat about the ‘wave of work’ in the infrastructure sector, writes Fran O’Sullivan
“There is no question that this is a boom and in my 40-year career I have never seen an opportunity like we have now and I have never seen the activity either,” says Graham Darlow.
“Of course we are a relatively small nation in a remote part of the world and it is hard to flex an industry like ours up and down,” he adds. “I think everyone is stretched at the moment and that includes the planners, the councils, the developers, the banks, the designers, the contractors and the sub-contractors.
“The sub-contractors play a huge part in our industry. Mostly they are owner-operated businesses with relatively limited capability to recruit and train their people. So, it is very important that we are bringing particularly skilled labour into the country at the moment.”
The Fletcher Construction boss says there are lots of people who would love to come to New Zealand and work. The company is currently recruiting in the UK. Dozens of Kiwis are returning from Australia along with Australians who have married New Zealanders.
“It is interesting how the sentiment has changed,” says Darlow. “I was in Sydney recruiting and honestly the people are really keen to come here because the image of New Zealand has been raised quite a bit.”
Fletcher pays market rates. But he stresses they are regional, not international, rates. “People are quite happy to come to New Zealand to live and work and forgo their income in return for lifestyle,” he adds. “There is no question about that. But our taxes are so much better as well.”
Another drawcard is that New Zealand projects are now of sufficient scale and scope that world-class engineers, quantity surveyors and others want to work on them.
Fletcher’s $2.7 billion order book is studded with prime projects like the New Zealand International Convention Centre, Commercial Bay project and Auckland’s Waterview tunnel.
Darlow is also pleased that the next wave of New Zealand infrastructure will extend beyond road transport.
“We do have a social interest or social conscience, and seeing a project that truly benefits the people or the economy or the environment truly inspires our people. Generally, engineers are not known for their human side but I think they do actually really want to work on meaningful projects.” Ramping up
Darlow is passionate about the capacity of New Zealand firms to deliver on the major scaling up of New Zealand infrastructure confirmed by Finance Minister Bill English today.
“Often there is a lot of debate around whether foreign contractors could do better,” he says.
“I believe that when specialist expertise is required a joint venture between a local firm and an international specialist firm seems to be the
Generally, engineers are not known for their human side but I think they do actually really want to work on meaningful projects. Graham Darlow
best combination because you are getting international technical capability combining with local resources, people and knowledge and understanding of the New Zealand legislation and way of working.
“There are several examples of where New Zealand firms have really ramped up to deliver what New Zealand needed from a zero base,” Darlow says. He points to the major Government-commissioned programme of state homes in 1937 following the Great Depression, where New Zealand firms, including Fletcher, stepped up and delivered them.
In the year 2000, there was another big ramp-up of road construction off a zero base — because “nothing had been built for 30 years”.
“We were given good warning of the work coming,” Darlow says. “We ramped up. We invested. We trained and recruited. Kiwi firms delivered.
“And after the earthquakes, off a zero base, Kiwi firms delivered.”
Darlow says the capability of New Zealand firms is often under-estimated. But he maintains they have the ability to flex, grow and develop.
“And when we need the expertise, like we did on the Waterview Connection we are more than happy to go and engage Obayashi, or whoever is needed, to deliver the specialist work.”
Fletcher is delivering the $1.4b project as part of the Well Connected Alliance, alongside McConnell Dowell Constructors, PB NZ, Beca Infrastructure, Tonkin & Taylor, Obayashi Corporation and the NZ Transport Agency. The alliance will also maintain and manage the connection — including the tunnels — for 10 years after it opens.
The Waterview Connection project is New Zealand’s largest, most ambitious roading project ever. Connecting the Southwestern and Northwestern Motorways (State Highways 20 and 16), it will complete a ring route around Auckland, providing an alternative to SH1 and provide much needed “redundancy”.
The project is expected to be completed in the first half of 2017.
“It has been a hugely successful project made successful by the transport agency’s competency around procuring the project, engaging the right consultants and getting the right contracting model for us to perform at our best,” says Darlow.
Proven alliances
He believes the alliance model is now well-proven in New Zealand.
Fletcher has done eight alliances. “All of them have been successful and all of them have been delivered under budget and ahead of time,” he adds. “Every one of them — and there has been no litigation.”
He says a public-private partnership (PPP) is actually an extension of the alliance model. “I think if people can be investing capital and improving infrastructure, having skin in the game and providing whole of value through the part ownership of the scheme, then I think that gets the best outcomes.”
Darlow says the recent entry to the New Zealand market of Spanish firms with very good expertise on PPPs is a plus. Fletchers has teamed up with Spanish construction giant Acciona Concesiones in the Northern Express consortium, the preferred bidder for the 18.5km Puhoi to Warkworth motor way project.
Other consortium members include ACC, HRL Morrison & Co, and Macquarie. “This has enabled us to really step up and deliver on PPPs,” says Darlow. “They are actually very capable. He says Acciona’s PPP financial strength is good and so too is their technical strength.”
“The employment has been so poor in Spain over the past six or eight years that these people have been working all around the world and their English is excellent.”
Government role
Darlow says the macro-economic view is very positive for the whole industry.
He cites the net migration figures, growth in population, the demand to provide really good first world infrastructure to enable the country and the economy to grow and for people to have really good lives. “I think that is becoming increasingly important — that people are looking for quality of life.”
He says the work former Transport Minister Steven Joyce did on the Roads of National Significance was the “best strategic thinking I have seen come out of the Government.
“The argument he put was that we are a tiny nation a long way from our markets.
“We can’t affect shipping rates but we can affect the efficiency with which we get our products to the ports and these are the roads that really are needed to do that — simple clear effective thinking, then setting standards for those roads and en- abling the budgets to go and build them.”
He cites the Department of Corrections as having a successful model around PPP delivery of prisons. “I was talking about smart procurement with the transport agency — the same applies to the Department of Corrections. Everyone benefits. They as a customer benefit, but we as a contractor and the designers and the other providers benefit as well through competent procurement. It is interesting through my career how much I have begun to appreciate good procurement.”
Infrastructure deficit
Ask Darlow for a quick insight into New Zealand’s infrastructure deficit and he points to road congestion in Auckland as the “best indicator”.
“I know that all modern cities in the world suffer from congestion, “he says. “But if we are moving as a nation towards a better quality of life, if you ask everyone what distracts from the best quality, it is sitting in a motorcar to try and move around and I think we have got a way to go, particularly with Auckland’s growth.”
His believes a good public transport system is needed to complement the road network. Then there is the increasing population and visitor numbers that underscore the need for huge investment into airports and ports and the “three waters” — water, stormwater and sewerage.
“They are all around quality of life,” he says. “Look what happened down in Hawke’s Bay. People need security around the water supply and protecting the environment. So, overall the picture looks really strong.”