How to ensure your construction project is efficient.
The New Zealand Infrastructure Commission Te Waihanga, produced a report last year showing that building construction productivity in NZ had grown broadly in line with the wider economy since 2000, and building (or vertical) construction had has outperformed with productivity gains since 2008.
Fig 1: Construction sub-sector annual productivity growth by economic cycle
Internationally, NZ has also performed better than average in productivity growth during this time, and has outperformed construction in Australia, the UK and the US. This is however of little comfort to investors, developers, and businesses who have seen construction costs rise by 25% in the past 18 months and may be considering deferring or cancelling projects as a result.
There are however options available to combat the cost increases, and the 6 points below are areas that industry experts have identified to help make a construction project more efficient:
Don’t attempt to put all your risk on the contractor: There is a temptation in the industry to engage with the lowest cost provider and insert onerous contractual conditions such as fixed costs and liquidated damages. By doing this, you immediately reduce the competition willing to deliver the project which increases the costs (as the contractor needs to cover their additional risk). The global consulting firm McKinsey supports this view and argues that the industry must move away from a hostile contracting environment to a system focused on collaboration and problem solving. It is recommended that project procurement should be based on best value and past performance rather than just cost, and contracts should have incentives aligned between the principal and the contractor.
Engage your contractor early: Allowing a construction team to be involved in the design phase can save significant costs from a project. The teams at the coal-face are best placed to be able to choose materials and influence designs that can be built more efficiently. This early engagement and value-engineering can be invaluable to controlling costs and getting a project off the ground in a cost-effect manner.
Bundle jobs together under a programme of works: If possible, combining a number of jobs together can be significantly more efficient. Savings are made on both sides of the contract through more efficient procurement, pricing & contracting processes. Construction companies can also gain from continuous improvement, learning from similar projects/client requirements, efficient project management, and the ability to forecast work in advance. Much of these savings will be passed back to customers.
Programmes of works have additional benefits that they can get a contractor secured in challenging markets or locations. The NZ Construction Alliance completed 28 fitouts from Kaikohe to Queenstown last year under a programme of works – all done on time, despite the Omicron outbreak, supply chain issues and the poor weather of 2022. Without a programme of works contract, the costs would have been significantly higher, and the output would have only been a fraction of the 28 projects completed.
Partner with a construction organisation that has a strong local supply chain and values long term relationships: In construction, experience matters. Companies that value long term relationships with suppliers and customers will ensure that everyone gets the best outcome – and that means that they will continue to have the opportunity to do business with them in future. Given the relatively small market, this is more critical in NZ than most markets internationally.
Ensure that the construction company invests in its people & technology: A highly skilled project manager will ensure that a project is scheduled efficiently, while a good site manager will ensure that the site is organised, unforeseen issues are resolved quickly, and that downtime is minimised. Supporting these key roles through operational excellence process improvements and suitable technology investments such as BIM (Building Information Modelling) will ensure that you get the most efficient project.
Be clear on your requirements & avoid variations: Organised clients in construction projects get better results as they avoid delaying projects and incurring variations. Any variations can be costly, and while unscrupulous companies may look to profit off these (but ideally not if points 1, 2 & 4 above were taken into consideration), it’s more likely that the variation will slow the entire project, be less efficient for the contractor and therefore have the costs passed onto the client. If you don’t have this skillset in-house, then employ a strong and experienced project manager.
For businesses that are considering building, there is no better time to start a project. Costs continue to rise (albeit not as quickly as they were), so choose your construction partner carefully and you’ll get the most productive outcome possible.