• 2016

In the cut-throat construction sector, it is generally accepted that the tender process is the best way to achieve value.

Tender, tender, tender is a common catch-cry in boardrooms – driven by the perception that tendering is the only way to get a good deal. 

However, the tender process is contrary to the principles of the new Health and Safety at Work Act 2015 (HSW Act), coming into force in early April. Under the new legislation, which promotes collaboration and joint responsibility, there are potentially serious implications for directors, chief executives and senior management teams, who now have a personal duty to ensure safety on their projects pre-, during and post-construction.

The HSW Act aims to reduce the incidence of injuries and improve the safety of workers. It requires people conducting a business or undertaking to properly assess risks and hazards created by their activities and to remove or minimise them.

This is making directors sit up and take notice, with the threat of up to five years imprisonment and three million dollar fines, boards and management need to take as much interest in health and safety as they do in the bottom line. The safety of people who construct and maintain, as well as those who subsequently work in their buildings, is now a director’s responsibility more than ever and penalties are commensurate with the severity of the issue.

The safety of workers during construction depends on the quality of a project’s design. Indeed, many of the difficulties construction contractors face are the result of unreasonable pressure put on the price and build time by the client – common outcomes of the tender process. The HSW Act demands a collaborative approach – this means the biggest impact it will have in the construction industry will be on procurement methods.

Time for a rethink of the procurement process

The outdated tendering process and the new HSW Act are fundamentally opposed. Contractors submit their lowest price by cutting fat out of the project in the belief they will make their margin back through variations based on design flaws and scope changes.

The result is often an adversarial relationship developing between client (aiming for the best price) and contractor (most exposed to health and safety risk during construction), with the consultant squeezed somewhere in the middle.

Too many contracts are awarded on the basis of lowest-price tenders, only to see the final price increase significantly through contract variations and failure to meet quality standards or deadlines – which can increase health and safety risks.

The disaffiliated, cost-driven tender model precludes the opportunity for collaboration. Central to the new Act is a requirement for all who are responsible for safety to work together.

The ability to influence safety on a project is greatest in the early stages of a project. However, in a tender process the design documentation has already been completed before tenders open, so there is minimal opportunity for the contractor to influence Safety in Design (SiD) initiatives, despite it being the contractor who is required to put the theory into practice. SiD workshops are most often completed post design by the consultant and client, while excluding the key participant – the builder.

Consequently, the time constraints associated with the tender process mean a contractor might have only weeks to properly assess the risks associated with the construction methodology. In tight timeframes, main contractors can also be forced to select non-preferred sub-contractors who are less safety conscious. The inevitable result is variations emerging and, in serious cases, safety can be compromised. Also liquidated damages limits contractors’ ability to change or challenge design and details that may in themselves be unsafe to build.

To thoroughly assess the risks associated with a project, the details must be inspected by the contractor, who is the expert in their field. This can only happen effectively at the design stage.

An alternative approach – collaboration

Following health and safety law changes in the UK and Australia, on which our new HSW Act is broadly based, a collaborative approach to construction procurement has gained favour over tendering.

This is because when it comes to health and safety, planning is the critical investment. The ability of participants to influence risk is greatest in the early phases of a project. Collaboration can be even more effective when the contractor and facilities operator have input into design, choice of materials and buildability (of both construction and maintenance).

In New Zealand, a similar move away from tendering to a collaborative approach involving the contractor during the design phase, aligned with the spirit of the HSW Act, is the obvious solution. Good standards of health and safety on a construction project start with the decisions made by the client who procures the work. It is at this stage that the whole health and safety climate of a project is established.

New Zealand-based contractors which have already adopted this approach have delivered very successful results for their clients. There are many examples of developments where contractors were involved in the initial design that are regarded by all participants as model projects, particularly in health and safety. Reducing health and safety risks is achieved through involving several parties in the design process, with shared ownership, as opposed to one entity directing the process.

Importantly, if the contractor participates in the design phase, the design will reflect high standards of practical buildability, engineering and architecture – as well as compelling value for money. In fact, if managed properly, the savings can be considerable, particularly where transparent price contestability is still evidenced.

The intention of the new HSW Act is to ensure duties and risks are allocated to the party best placed to manage them. While collaboration and collective action underpins this approach, it requires strong leadership from the decision makers. If not taken seriously at the top of the tree, the implications for poor management can be crippling. Time to rethink obsolete processes in favour of collaboration – legislation now demands it. 

Further enquiries, please contact:

Bevan Hames                                                  
Business Development Manager                         
Apollo Projects Limited                                     
+64 (0)3 358 9185                                        
bevan.hames@apolloprojects.co.nz   

David Ruscoe
Partner, Specialist Advisory
Grant Thornton New Zealand Ltd
T +64 (0)4 495 3763
E david.ruscoe@nz.gt.com