Collapsing building firms suggest construction industry has a risk issue


It has been a grim 48 hours in the New Zealand building industry with two smaller firms collapsing a day apart. The demise of Ebert Construction in Auckland and Maven Interiors in Christchurch, aside from potentially leaving 150 workers with no jobs follows on the heels of turbulence at Fletcher Construction in June.

The recent decisions to put these two firms into liquidation strongly suggests to me that the building industry in New Zealand has issues with its understanding of risk. When a building firm places bids for work, it needs to be able to have enough work to grow and employ staff. It also needs to be able to maintain the bottom line – that is to say, cover costs, such as wages, equipment, maintenance and so forth. And that is where a lot of builders seem to be falling flat on their faces.

Such issues are not new in New Zealand. In February 2013 Mainzeal construction collapsed. It was owing creditors $151 million when it folded. Little of the monies owed – if any at all – has been recovered. The costs might be greater when one considers that thousands of dollars a day would have been lost from construction sites being locked up.

To what extent cases like this are genuine risk that might not have been foreseen, as opposed to being caused by reckless behaviour, will vary from one case to the next. However the consequences are the same: half completed building jobs; contractors and sub contractors left out of pocket; expensive equipment that could be getting used to complete other projects being locked in building sites that cannot progress.

The risk has been no more graphically demonstrated than by the huge losses accrued by Fletcher Construction. Once a mighty building company running the largest building projects in New Zealand, Fletcher was a corporate high flyer. But a combination of the Christchurch earthquakes, inept handling of the airport short stay hotel for those only in town for a few hours in between flights along with a number of Auckland building projects striking trouble saw Fletcher announce a projected $660 million in losses in February 2018. When added to $322 million in losses between 01 July 2017 and 31 December 2017, the overall losses for Fletcher are nearly N.Z.$1 billion.

If the laws were not amended after the Mainzeal collapse, then what needs to change is several things:

  1. Amending the law to ensure that the little man who might have sunk much of his life savings into a project is able to recover costs and continue to work
  2. Require a company to have bonds that can be seized if it goes under
  3. Exposure of Board members, top level executives to accountability for their part in any large scale collapses

 

Unacceptable risk posed by quake prone hospital buildings


Staff working in Christchurch hospitals have expressed concerns that the buildings they are working in pose an undue risk in an earthquake. Furthermore the staff are concerned that they have only one option: accept the risk or resign.

It is all the more unacceptable to have these buildings in such a state as they are in a city still recovering from New Zealand’s worst seismic disaster in 80 years. The Canterbury District Health Board should not be treating this in the manner that it is, as C.D.H.B. will bear responsibility for any failure of duty of care to all those working and around the buildings on a day where they fail or suffer significant structural damage in an earthquake.

The staff are right to be concerned. It is not paranoia or anything else – aside from a duty of care to their patients to make sure that they are in as safe an environment as possible during their time of care there, staff also have the right to know that they will be safe in delivering that duty of care.

I am concerned that Christchurch as a city, and the C.D.H.B. as a Government entity are not recognizing and upholding that unspoken promise many of us would have made in mourning the passage of those who died, to learn the lessons of 22 February 2011. What example are we setting for future generations by failing in this relatively simple yet fundamentally important task?

New Zealand immigration needs to do due diligence on tradies


Over a six month period, an Immigration New Zealand/Police operation stopped 190 potential tradies whose immigration visas were found to be suspect. Some were stopped at the border and sent home before they could enter New Zealand. Some were caught on work sites and deported. Many more are most likely still here in some capacity.

The tradies commonly told the officials that “a man in a black Audi” would come around and pay them every Thursday. He would pay them $20 or $40/hr. Operation Spectrum as it was known also uncovered a weakness in New Zealand border security, that enables people who have left or been deported to return under new identities.

One of these non-compliant people is Adam Gan Bin Abdullah, from Malaysia. He was one of two who went on to get permanent residency. Last week he went to Manukau District Court to plead guilty to immigration fraud. Somehow though, Mr Abdullah found the gall to intone that he thought he could get away with it.

This is not an acceptable attitude for anyone hiring in New Zealand to have. One could go on about “when in Rome” and subsequent expectations, but the simple fact of the matter is New Zealand is supposed to have standards to promote and uphold and undermining them with such an attitude is clearly not going to achieve that task.

When an employer pays out in cash, it is time to pay attention. How do we know if he has paid A.C.C., deducted income tax and so forth from the money? If he has how do we know that it is accurate? And where are the paper records that he would be expected to keep when approached by Inland Revenue Department, that compliant New Zealand employers would keep?

When New Zealand Immigration goes over the visa applications for people such as the tradespeople that Mr Abdullah hired, whose role is it to check that they are actually qualified and not cowboys? Whose role is it to check that their visa applicants are true and correct?

Immigration New Zealand has improved its detection systems, with improved biometric data handling processes. It says that with these improvements New Zealand has a better chance of picking up frauds like Mr Abdullah at the border before they are let in.

Whilst that is good to hear, any person not born in New Zealand who knowingly violates New Zealand immigration law once should have a minimum non-entry period, with a warning that next time it is permanent.

How did Fletcher Building get to this?


For decades Fletcher Building was the face of New Zealand construction. Employing 20,000 people globally including hundreds of New Zealanders, Fletcher Building had a N.Z.$9 billion revenue in 2016. It was involved in the largest building construction projects in New Zealand. So how did Fletcher Building get things so dreadfully wrong.

As a warning of how serious the situation is trading was halted on Fletcher shares on Thursday 8 February 2017 and then extended it on Monday 12 February. When trading halted the price per share was N.Z.$7.70, down from N.Z.$10.00 in February 2017.

The causes of Fletcher Building’s woes are numerous and no one single cause is entirely to blame. Across several different parts of the business – acquisitions, the Christchurch earthquake recovery, requiring contractors to accept full liability – things have gone wrong, which have added up to the current mess. But to understand the mess we need to look at these causes briefly:

  • Fletcher Building had a number of acquisitions, such as the Christchurch Justice Precinct and Auckland’s new International Convention Centre
  • Fletcher had some huge cost blow outs that have severely hampered a number of significant projects which have not gone entirely to plan

So, how rare it is to have the Chair of such a high profile company admit – though certainly very welcome in terms of transparency and honesty – that some frankly incompetent decisions had been made. But that was Ralph Norris, who in his prior life was Chief Executive of AIr New Zealand and Commonwealth Bank of Australia, Managing Director of A.S.B.

The causes of Fletcher Building’s massive slump can be attributed to a number of causes. However it was admitted that some of their acquisitions have turned into liabilities.¬† Their programme of work has been totally cut back and when the existing programme stops, will dry up completely. Quite where that will leave hundreds of workers I have no idea, as a large number of people¬† will be in need of work.

I have concerns about who will fill the void with the with the withdrawal of Fletcher’s Building and Interior unit. Foreign companies might be willing to do the work, but are not so likely to linger when they have finished. Nor are they so likely to have the same values and empathy for their New Zealand clients and the New Zealand building sector at large.

Fletcher Building’s woes extend to the Kiwi Saver schemes that invested in it and thereby thousands of New Zealanders. The extent to which it’s losses will impact on these schemes is not known as there might yet be further losses to come. It will come as a shock to the people who invested in the schemes to ensure that they have funds to dip into in retirement.

The next several days and weeks are going to be critical. The financial year ends on 31 March, at which point I believe that the true nature of the crisis at Fletcher Building will become clear.

Questions raised about Chinese tradies building Auckland hotel


It has come to my attention that a Chinese company wants nearly 200 visas for short term tradespeople to come to New Zealand and finish a hotel project in Auckland.

Questions should be asked nevertheless. Anyone handling such a major construction project should know that it will have substantial and complex labour requirements.

I have concerns about this. Will Chinese labourers and the company they work for:

  1. Adhere to New Zealand labour law
  2. Not take dangerous short cuts in building the hotel that might compromise the physical structure
  3. Pay them New Zealand wages instead of whatever they might get in China

My concerns stem from a complex set of interacting issues that have arisen in New Zealand’s building sector over the last few years. They include shoddy earthquake repairs in Christchurch and Kaikoura, overworking of labourers by some companies, the importation of questionable steel from China and comments by a few non-New Zealand employers suggesting that they do not care or respect New Zealand laws and the custom of this country.

That is not okay. And New Zealand criminal law should reflect this in its sentencing regime.

New Zealand immigration need to be careful handling this. 175 individual visas need to be processed, but I also assume at some point the eventual holders of those visas will be screened to determine their suitability for the job. How will we know the credibility of the applicant in terms of whether they have a criminal record, their qualifications? Will they have some sort of insurance cover in case of an accident at work, elsewhere, ill health or being a victim of crime?

I accept that it might not be possible to find that many trades people in New Zealand to do the work without slowing down other projects, such as those related to the earthquake recovery in Christchurch.

I expect that somehow the trades people that come will have to demonstrate knowledge of New Zealand building practices, occupational safety and health before they can start work on the site. I expect that this will be done in New Zealand under the supervision of Department of Labour staff and the expectations made clear. In making this expectation, it is appropriate that New Zealand Immigration, Department of Labour and appropriate agencies have oversight of such a large application for visas.