New Zealand: Mitigating

the Risk of Cost Escalation

on Construction &
Infrastructure Projects
28 April 2022
Welcome and
introduction
Matt Wheeler FRICS
Business Director – Advisory Practice
Beca
Consultant
perspective
John Oscilowski
Principal - Project Strategy & Delivery
Beca
Construction
Cost Escalation
John Oscilowski
What you‘ll learn about

Global Forces

New Zealand Trends

Mitigating Cost Escalation

Looking Ahead
 Part 1: Global Forces

Global construction set Strong rebounds from Demand for construction Global manufacturing
to grow major economies was materials and products continues to expand
expected remains high

Shipping capacity and Crude oil – sky's the limit Steel demand still increasing
container shortages
persist
 Part 1: Global Forces

government

Covid - now a War!

Humanitarian, Geo-political
and Economic impacts

NZ Govt Investment Strategy?

 Part 2: New Zealand Trends

Factors Behind Cost Increases Factors behind Material Price Increases

Covid-19 Labour Compliance / Productivity Fuel Raw Shipping Labour

Carbon Restrictions Materials
Part 2: New Zealand Trends

Non-Residential Construction Horizontal Construction

• Materials Cost Increases

• Supply Chain Issues
• Forecast Escalation 20 %
Material Cost Increases
Part 2: New Zealand Trends
Non-residential Building cost escalation
CGPI-NRB index, annual %change

Source: Statistics NZ, NZIER forecasts

 Part 3: Mitigating Cost Escalations

Material
availability
Product
substitution

Payment Contract
mechanisms
Project procurement
Planning
Early
notification

Program and Budget /

plan Contingency
Contract
clauses – price
fluctuations
Part 4: Looking Ahead

Costs will be volatile

Further increases to come

Embrace change to better

define budgets

Continue to engage with

industry

Escalation provisions & risk

funding
 NEW ZEALAND
G L O B A L
THANK YOU
QUESTIONS?
Contractor
perspective
Mark Johnston
Estimating Manager
Hawkins
Inter-related constraints

• Tenders and pricing

• Validity of pricing

• Award of Contract

• Fixed price or fluctuating

Escalation

• Price increases relating directly or indirectly to

inflation etc.

• Additional costs to overcome supply chain

constraints/scarcity of resource.

• Reduced competitive tension.

• Escalation is a project problem.

Measures/lessons learnt

• Tender

• Procurement

• Project
Tender planning

• Visibility of pipeline

• Tenders communications

• Procurement route
Effective procurement

• Timing and quality of procurement

• Timing and quality of decision making

Project attractiveness

• Fair contract

• Cash flow

• Logistics
Asset owner
perspective
Patrick Dougherty
General Manager
Construction and Innovation
Kainga Ora
Material Cost
Fluctuations in NZ
An overview of Kāinga Ora
practices and plans for future
mitigation

Patrick Dougherty
GM, Construction and Innovation
Kāinga Ora
WHAT IS THE IMPACT OF COST ESCALATIONS
AND FLUCTUATIONS FOR KĀINGA ORA

Scale - current
Kāinga Ora owns over 68,000 homes which need regular
maintenance.
68,000
Our Build Plan to 2024

7000
Our Public Housing Construction Programme will build
in excess of 7000 homes by June 2024

Timeframe
Suburb-wide development projects can take over 20
years to complete so need to ensure a certainty of
supply 8-25
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 Working with
Working with Build Supply Chain
Partners Partners
WHAT WE ARE
CURRENTLY DOING

More Consistent Use existing

Approach to National Supply
Variations Agreements

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WHAT WE ARE WORKING ON IN THE MEDIUM TERM

• Standardise Both Materials And Construction Methodology

The more that we standardise both materials and construction methodology, the easier it is for the
trades to work on our homes as they are repeatable, the easier it is for apprentices to learn..

• Transparent Pipeline
We recognise the importance of having a predictable and transparent pipeline to give supplier
certainty.

• Labour - Apprentices
We need more skilled workers. The Kāinga Ora Apprenticeship programme has helped 500 individuals
into careers in the construction sector in the last two years and we commit to continuing that
programme into the future.

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MITIGATION IN THE LONG TERM

Alternative RE-USE
OSM Materials Demolition and
Building R & D into Waste
Capability alternative Minimisation
Policy
We know we need
materials
to look at long term
solutions to supply
issues.

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Questions?
Thank you
RICS APAC AWARDS 2022

New Zealand
Celebrating built environment excellence

Nominations close: 3 June

Finalists announced: 15 August
Winners announced: 26-30 September

Enter or find out more: rics.org/ricsawards