Action area: Risk

Type of project: ITA-led

Priority area: Risk management

During consultation by the ITA with the building and construction industry in 2017, risk was a recurring pain point.

Complaints from industry centred on procurement methods, unfair risk allocation, slow consenting processes because of the required level of health and safety detail, and “over-engineered’ solutions. Clients’ complaints were about the risk of the unknown, risk of cost overruns, and risk of poor workmanship.

With this in mind, the first ITA-led project was about risk allocation and management.

Progress to date

On our journey to date, we’ve been asking lots of questions to unpick the issue. The goal is to ultimately create practical frameworks, tools and approaches for anyone in the public or private sectors of the industry to manage risk.

Here’s the story so far – in May 2018 we held an industry workshop with 30 people – contractors, owners, suppliers, designers and regulators – to examine the root causes of risk in the industry. This built on discussions held previously with ITA champions and leaders in 2017, including industry agencies, associations and boards across New Zealand.

Together, these sessions have helped to paint a picture of the issues associated with risk. Six ‘hypotheses’ around fair risk allocation and management have been articulated and are a basis for ongoing investigation:

  • Hypothesis #1 – Design decisions are made without fully understanding downstream impacts, leading to exposure of risks to others further down the value chain.
  • Hypothesis #2 – Contractors are being asked to price on incomplete design work in very short timeframes. They are locking themselves into unachievable pricing and timelines, exposing themselves and others to critical risks.
  • Hypothesis #3 – The lack of understanding of the benefits of outcome-based contracting means there is greater focus on lowest cost/best price contracting and inappropriate risk sharing and management as a result.
  • Hypothesis #4 – When clients and contractors don’t trust each other, they use contract terms which don’t manage risk as well as the terms that could be used if it were a high trust relationship.
  • Hypothesis #5 – There have been changes to the way the industry works to the detriment of fair risk management and sharing.
  • Hypothesis #6 – Inappropriate risk management and sharing is more prevalent when first-time clients or poorly equipped clients are involved.

Next steps

Our next step is to test these hypotheses and we will discuss how to do this through conversations with a diverse range of people from across the sector.

We have initiated some work on hypothesis #5, comprising interviews with industry leaders who have long experience of the construction sector and a perspective of the way in which the industry has changed in relation to risk.

At the same time, we’ve been talking to researchers at the University of Auckland’s Te Pūnaha Matatini (TPM) Centre of Research Excellence about some joint research projects around risk. and risk and contracting. An initial project focused on how to optimise the spread of risk in contracts across the different parties. A complementary project looked at characterising failure on building industry contracting networks, the cascading effect of failure, and industry resilience. This collaborative approach enables us to draw on the university’s expert research skills and tools which we believe will prove invaluable insight into the complex building and construction system.

Updated March 2019