Taking our medicine: Facing the infrastructure gap (Part I)
At a glance
The infrastructure shortfall is massive across practically every category. The cost of delivering this infrastructure will overwhelmingly be borne by taxpayers, ratepayers and utilities customers. Third-party funding of infrastructure, while no silver bullet, provides access to funds and skills now, frees Government to focus on service delivery, and includes well-known tools to bridge the gap.
We discuss these key points in Part I. Part II of this series will evaluate the third-party funding tools available, discuss sectors where they are already in play, and set out the main opportunities for New Zealand to apply third-party funding.
One of the biggest opportunities in both D&B and ECI projects is improving how designers and contractors collaborate from day one. Too often, design development follows a traditional, linear approach, where designs are developed in isolation before construction input is introduced. While this method works in some cases, it often leads to missed opportunities for optimising buildability, reducing risk, introducing cost-effective innovations and improving project efficiency.
Adopting a more integrated, collaborative approach involves:
- Starting with contractor input, considering construction methods, programme risks, capital expenditure (CAPEX), and constraints upfront
- Using an iterative design process, where designers refine the approach to meet standards, while maintaining practicality and buildability
- Aligning risk allocation early, allowing risks to be managed by those best placed to handle them, rather than being pushed onto the wrong party
One challenge that can arise is finding the right balance between design intent and construction efficiency. Some projects still follow a design-first mindset, where contractor input is treated as an afterthought. On the other hand, there are times when contractors may focus too much on short-term cost savings rather than long-term project value. Both perspectives are valid, but true success comes from collaboration to get a balanced total expenditure (TOTEX) outcome.
Another key factor is risk allocation. The best project outcomes happen when designers, contractors, and clients have open discussions early to identify risks that are allocated fairly, rather than being locked in without fair and reasonable consideration. When this doesn’t happen (i.e. parties not best placed to manage the risk are assigned the risk), the procurement model itself sometimes gets unfairly blamed.
So how can we implement a successful D&B and ECI approach?
- Encourage early and meaningful contractor engagement in the project design phase
- Foster a collaborative, problem-solving mindset rather than a defensive stance
- Align risk with capability, not convenience, ensuring each party manages what they’re best equipped to handle
If we can shift the conversation from ‘us vs. them’ to ‘how do we work better together?’, we’ll see more efficient, cost-effective, and constructible designs, providing better project outcomes for everyone.
As we share more learnings on D&B best practice, alongside our contractor and client partners, we would love to hear others’ thoughts — how have you seen this play out in your projects? And what, collectively as an industry should we be doing differently?
"Public expectations, government policy, inadequate depreciation, cost escalation and disrupted supply chains add up to an Everest of accumulated infrastructure needs.”
The main source of funding for land transport – the National Land Transport Fund – simply cannot keep up with the ever-growing number of roading, public transport and cycleway projects it needs to maintain, let alone growth. Over $4 billion was spent each year on transport average between 2011 and 2021, but this was not enough5. Add in cyclone and flood recovery in the Hawkes Bay and Auckland, and the scale of the transport challenge becomes apparent.
As New Zealand aims to electrify to cut emissions and boost its green credentials, an estimated increase in electricity capacity of 170% is required over 30 years6. Costing this is hard, but using recent examples of renewable energy project costs, this could be over $50 billion.
There is still a housing shortfall of perhaps 20,000 dwellings (down from over 40,000) across New Zealand. With less residential development as interest rates have surged, reducing land values, net migration has hit record levels, with a net gain of 110,000 in the last 12 months. Consequently, the shortage is growing by around 5,000 a year. And arguably New Zealand needs to build many more houses than the nominal shortfall. A poor quality housing stock that makes many residents ill carries all sorts of other social costs for the country that could be prevented if everyone lived in warm, dry, safe homes7.
Then there is tourism infrastructure, already bursting at the seams pre-COVID, with very little new investment during the three years of COVID isolation. Auckland still does not have a solution for mooring larger cruise ships downtown after the mooring dolphin proposal was passed and then abandoned, let alone an adequate cruise ship terminal, a nationwide challenge8. Conference centres have opened in Christchurch and Wellington, but there is a significant gap in second-tier cities. There is a need for more public toilets, airport upgrades, and adequate infrastructure along our great walks and in freedom camping areas.
One challenge that can arise is finding the right balance between design intent and construction efficiency. Some projects still follow a design-first mindset, where contractor input is treated as an afterthought. On the other hand, there are times when contractors may focus too much on short-term cost savings rather than long-term project value. Both perspectives are valid, but true success comes from collaboration to get a balanced total expenditure (TOTEX) outcome.
Another key factor is risk allocation. The best project outcomes happen when designers, contractors, and clients have open discussions early to identify risks that are allocated fairly, rather than being locked in without fair and reasonable consideration. When this doesn’t happen (i.e. parties not best placed to manage the risk are assigned the risk), the procurement model itself sometimes gets unfairly blamed.
“We have been living beyond our means for decades, not putting aside enough for the rainy day of infrastructure replacement, improvement or growth. It is now bucketing down.”
- Encourage early and meaningful contractor engagement in the project design phase
- Foster a collaborative, problem-solving mindset rather than a defensive stance
- Align risk with capability, not convenience, ensuring each party manages what they’re best equipped to handle
If we can shift the conversation from ‘us vs. them’ to ‘how do we work better together?’, we’ll see more efficient, cost-effective, and constructible designs, providing better project outcomes for everyone.
As we share more learnings on D&B best practice, alongside our contractor and client partners, we would love to hear others’ thoughts — how have you seen this play out in your projects? And what, collectively as an industry should we be doing differently?
Those who benefit should pay their fair share
We have a history of not charging the full cost of growth infrastructure to the owners of the land that benefit from that infrastructure, with ratepayers picking up the tab as a consequence. Another awful byproduct of this approach is that we incentivise sprawl.
Growth should finance its own infrastructure and councils need to implement accurate charges. One common misconception is that higher, more accurate infrastructure charges in new developments will increase housing prices. The empirical evidence is clear; accurate charges reduce the price of raw land in the absence of ratepayer subsidy to reflect the true value of uninfrastructured land –they do not put house prices up.
References
2 Ministry of Health. 2020. The National Asset Management Programme for district health boards. Report 1: The current-state assessment
3 See here for instance
4 Ministry of Health. 2020. The National Asset Management Programme for district health boards. Report 1: The current-state assessment
5 Waka Kotahi. Funding and transport – dashboard and open data
6 New Zealand’s first Infrastructure Strategy sets a path for a thriving Aotearoa | News | Te Waihanga
7 See here for instance
8 See here for instance