FROM NZCB —
Grant Florence Chief Executive
Don’t forget the little guys
The following is an opinion piece I have written for the next BRANZ Build magazine.
The government’s big buck infrastructure spend is good news, but it doesn’t necessarily benefit the small to medium size residential building companies doing over 65% of building work. Grant Florence, New Zealand Certified Builders Chief Executive, says this group needs to be heard at the policy table. Like other sectors of the economy, building and construction has been hit hard by COVID-19. While central government has clearly recognised and sought to address this through the prioritisation of major shovel-ready infrastructure developments, that intervention does not automatically benefit small to medium-sized (SME) building firms, which make up 90% of the building and construction sector.
Sustaining smaller businesses In this context, it is vital that the voice of SMEs is heard in public policy development and that there is a concerted focus on what else may be required to sustain smaller building firms alongside the larger construction companies. The big numbers attached to major infrastructure projects naturally lead to a perception that there is a downstream benefit for smaller building firms engaged as subcontractors. While these projects do create some opportunity for those smaller firms, the reality is that a significant proportion of project costs is for machinery rather than labour. There’s also a culture of significant downward pressure on labour costs driven by procurement practices.
Incentivise big constructors to subcontract locally In the past, there’s been a ‘race to the bottom’ in terms of how large construction companies win major infrastructure tenders, fuelled by immigration policy settings enabling companies to keep labour costs down. This has obviously now changed, with the end of easy movement of people across borders, for the time being at least. In this context, the reality is that procurement costs will need to go up so that projects can be resourced locally. Incentives need to be created to drive the right kind of behaviour by major construction companies in subcontracting work to smaller building firms.
and subcontracting firms. The massive hit to consumer confidence from the economic impacts of COVID-19 therefore creates significant risk for SME building firms. In this context, clear policy direction from the government on the path to recovery and policy initiatives that help drive consumer confidence are critical.
It is vital that the voice of SMEs is heard in public policy development and that there is a concerted focus on what else may be required to sustain smaller building firms. Some bounce-back but still uncertainty NZCB’s survey of our members at the end of the lockdown revealed that 40% estimated they have lost work as a direct result of the impact of COVID-19 on consumer confidence. While we are starting to see some bounce-back from this position already, partly as a result of government’s welcome decision to allow builders back to work sites in Level 3, there is still significant uncertainty. It’s important for government to keep this in focus alongside the major flagship infrastructure projects. For our part, our member builders are encouraged by the opportunity to play their part in building the pipeline of carpentry apprentices, supported by government’s $284 million investment in apprentice subsidies, and to explore new business opportunities emerging. For example, according to leading economist Tony Alexander who shared insights with NZCB members during the COVID-19 lockdown, there may be growth in demand for residential alterations with more people wanting to create dedicated home office space.
It’s also important to remember that in recent years – as housing demand has grown – residential building work has accounted for in excess of 65% of all activity in the sector overall. This is the bread-and-butter for SME building
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