11.05.2020

COVID-19: Government signals infrastructure push for economic recovery

While New Zealanders play their part in eliminating the spread of COVID-19 by staying at home, the government has released details of its plans for the construction sector in a post COVID-19 New Zealand.

In a release last week, Ministers Twyford (Transport) and Jones (Infrastructure) have set out the government’s intention for the construction sector as pandemic control measures continue.  The government’s plan is comprised of the establishment of the Infrastructure Industry Reference Group (Reference Group), commencement of advance payments to contractors engaged in government transport projects and an announcement that the government is considering significantly reforming Crown Infrastructure Partners (CIP).  The government has also announced it is pursuing options to speed up the consenting process for key construction and infrastructure projects.

The goal of the announcements is clearly outlined as a stimulation effort to mitigate the economic impact of the Covid-10 pandemic.

Reference Group

Chaired by Mark Binns (current chair of CIP) the Reference Group is tasked with collating and recommending to Ministers, infrastructure projects from the public and private sector which are ‘shovel ready’ now, or will be within the next six months.  The Reference Group is calling for information from those in the construction sector with upcoming projects.  The government has outlined a timeline for information to be submitted to the Reference Group, and a set of criteria which the Reference Group will assess before recommending projects to Ministers.

The criteria for projects have been outlined as follows:

  1. Construction readiness: Projects are expected to be ‘shovel ready’; ideally construction could begin now, or within six months.
  2. Public or regional benefit infrastructure: Infrastructure highlighted by the Reference Group as beneficial includes transport, three waters and buildings and structures.
  3. Size and material employment benefits: Projects are expected to be sized above $10m, however this threshold may be altered for smaller regions.
  4. Overall benefits and risk: The overall assessment of projects has broad considerations including economic, social and environmental benefits which are either regional or nation wide.

A full description of the criteria can be found in the Project Information Guidelines.

Responses are to be provided to the Reference Group by 14 April 2020

Advance Payments to contractors

The government has begun advance payments to contractors engaged in NZTA projects who are unable to work during the lockdown.  Payments are being made to encourage and enable contractors to retain sub-contractors and other workers so that work can commence as restrictions are eased.  These payments are not being made to contractors in PPE projects.

Ministry of Works?

The government is actively exploring reform of CIP in light of the anticipated construction environment following the COVID-19 lockdown.  CIP currently investigates and implements commercial models for the government supply of specific infrastructure projects.  The government has outlined it is looking to alter the size and purpose of CIP.  Minister Jones acknowledged that one possible scenario could see the government without the requisite workforce to carry out its infrastructure goals.  Further, the current financing and construction model “mired with red tape” would no longer be fit for purpose in the anticipated recovery period.[1]  A return to a hands-on Ministry of Works approach has been mooted by Minister Jones as a measure to mitigate these anticipated employment and infrastructure complications.

The Ministry of Works undertook substantial construction work for the government from 1876 until it was disestablished in 1988 as part of state sector reforms.  When the Ministry operated it constructed most of New Zealand’s roading, rail and energy infrastructure.  When the Ministry was disestablished, several its functions were transferred to other government departments, while other operational aspects were subsequently privatised.

Specific details have not been provided on what a future government agency or Ministry tasked with coordinating and executing government infrastructure would look like.  We will watch this space with interest.

Fast-tracking of consents

The Minister for the Environment has announced that officials are working on options to speed up the consent process for specific infrastructure and construction projects so that work can commence when the recovery phase is entered.  This is intended to compliment the efforts outlined above to provide a pipeline of work post-lockdown and to provide certainty to investors and developers.  The details of the fast-tracked consent process are still to be put before Cabinet with specifics to be announced before the end of the lockdown.

These initiatives and indications outlined by the government signal that construction and infrastructure will form a key component of the COVID-19 economic recovery; however, the role and extent of private sector involvement is unclear.

Construction will form a vital part of New Zealand’s economic recovery once lockdown restrictions are lifted.  We expect further announcements from the government over the coming weeks on its plans to reduce the economic impact of COVID-19 shutdown on companies operating in the construction sector, and to ensure existing projects are able to re-establish, and new projects commence, swiftly once the restrictions are lifted.

If you require advice on any of the government initiatives above, or construction concerns relating to COVID-19, please contact one of our team or your usual contact at Hesketh Henry

 

Disclaimer: The information contained in this article is current at the date of publishing and is of a general nature.  It should be used as a guide only and not as a substitute for obtaining legal advice.  Specific legal advice should be sought where required.

 

[1] https://www.newsroom.co.nz/2020/04/01/1109751/a-ministry-of-works-for-post-covid-nz

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