Auckland light rail, Interislander ferries: Infrastructure delays cost New Zealand $11.8b
Auckland light rail. Transmission Gully. Dunedin Hospital. The Interislander ferry replacements. Not just multi-million-dollar infrastructure projects, but ones that have been paused, delayed or cancelled by various governments.
Research carried out by economist Shamubeel Eaqub has found stop-start decision-making over the last 25 years has cost taxpayers an estimated $11.8 billion.
He looked at the inflation cost of deferral, the productivity penalty from a loss of sector capacity and capability, and the lost benefits to communities of the projects.
“I was surprised by how large it was, because $11.8 billion buys you a lot of kit in New Zealand,” Eaqub told the Herald.
“When you have a $210 billion infrastructure deficit, $12 billion would get us ahead. I don’t think we can afford to waste money as we are doing at the moment.”
There is also a material and time cost in rescheduling and resupplying projects.
The Iran war and resulting fuel crisis led to the report being commissioned by Water New Zealand, Civil Contractors and Infrastructure New Zealand.
Civil Contractors chief executive Alan Pollard said the report highlighted the underlying structural issues facing the sector.
“The findings are timely as councils and central government grapple with major infrastructure reform and funding pressures, particularly due to conflict in the Middle East,” Pollard said.
“Infrastructure construction delivers public benefit. When looking at delaying or cancelling of projects, we need to be careful we aren’t unnecessarily denying our communities access to these benefits. Stop-start investment damages capability across the entire supply chain.”
The report says economic downturns are the worst time to defer projects.
“We can’t afford a shock to become a stop,” Infrastructure New Zealand’s Nick Leggett said.
“This report and the associated tool show the massive cost in the future. If you think you’re saving a couple of bucks now, you’re going to be losing a lot more in the future and you’re going to cost people’s jobs.”
Eaqub built a “cost of stopping” digital tool as part of the research.
It models various scenarios, showing the costs to delay of anything from a small $5 million council renewal project to a multibillion-dollar Road of National Significance.
As an example, if a major roading project ($500m-plus) is paused for two years, the impact on workers is huge.
Approximately 65% of direct project workers will have left the industry.
Recruiting and retraining replacements costs $18m and leads to months of reduced productivity.
Eaqub said the real-life impact on workers shouldn’t be underestimated.
“When I talk about the loss of capacity and capability, it’s really people we are talking about,” he said.
“What we find is we hire great people, we train them up, we get them just right for New Zealand and then when the work disappears, they quite often either leave the industry or leave the country.
“That means when the work comes back, we have to hire them again and restart the process.”
Pollard says it takes at least five years for a civil construction tradie to build their skills on the job.
“So if we lose teams to other industries or other countries through a gap in the market, it takes a long time to rebuild this capability, which again escalates project costs through the need to on-board, train and develop skilled workers within companies.”
He said it also leads to workers missing out on vital on-the job experience and training.
In another scenario, if a medium-sized council project worth about $10m was paused for a year, it would see $5m wasted.
Approximately 50% of direct project workers will have left the industry, while recruiting and retraining replacements costs $235,000.
Water New Zealand’s Gillian Blythe said many water projects were relatively small in the scheme of the infrastructure spend, but still vital for their communities.
“You might have 12 weeks of renewals, but if your client hasn’t got the next slot of 12-week renewals lined up, then that team has to be diverted onto something else,” Blythe told the Herald.
“And that means when suddenly the pipeline is back on, you’ve got to find another team who has got to get back up to speed.”
She urged decision-makers to think about the drop in productivity when they decided to pause, cancel or delay projects.
“We need to make sure our procurement processes are efficient, that we are lining up the next jobs that need to be done, such that you go from a set of renewals over a month or a year or whatever the timeframe is, and you immediately activate the next one.”
There are about $30b of projects in the Infrastructure Commission’s pipeline.
Politicians from all parties have been blamed for using infrastructure projects as political tools.
“I think that there is always a tendency, particularly at the moment when we’re in really tough economic and fiscal times, for a government to try and save money, especially when it looks like costs could ramp up as a result of the fuel shock,” Leggett said.
“And what we want to do is send a signal to both local and central government and indeed the private sector that the very best thing you can do is push on, not be stupid about just driving any project at any cost. There is a real risk of slowing, pausing or stopping infrastructure at times of economic stress.”
Report recommendations include ring-fencing maintenance budgets, committing to a funded multi-year infrastructure pipeline and requiring formal assessment of the full costs before projects are paused or cancelled.
The “cost of stopping” tool is now publicly available.
The report has been sent to Infrastructure Minister Chris Bishop but his office said he hasn’t yet had a chance to read it.
Katie Bradford is a Senior Correspondent at the Herald. She has been a broadcast journalist for over 20 years and was based in the press gallery for 10 years. She specialises in politics, business and Auckland issues.