Your questions answered:

Amid the rapidly evolving environment of the COVID-19 outbreak, at White Associates we are working with our clients to undertake risk analysis on existing and new projects, addressing questions for funders on risks that may impact the construction industry and project funding across procurement, supply chain and resourcing:

Key questions funders need to ask:

1. How will COVID-19 affect my current and future projects?
2. What trade components resources are affected?
3. How best to manage the risks?
4. Will insurance policies respond to COVID-19 delays – and what to watch out for if sites are suspended?
5. Will contractors be entitled to extensions of time if COVID-19 delays a project?
6. How is White Associates responding to the risks and reporting back?

Does this situation also present opportunities?

To answer these questions:

1) How will COVID-19 affect my current and future projects?

Current projects:

• If a project is in its early stages of procurement, the need exists to examine the supply chain to probe for any issues.
• It is also worth:
  • Examining locally-sourced product options to see if a project would be de-risked from a time and cost perspective through a local supply option
  • Exploring whether social distancing recommendations affect immediate supply chain availability, site resourcing
  • Understanding contingency plans for key personnel in the event of illness.
• Later on in a project, supply chain constraints may not be so much of an issue, but consideration still needs to be given that you’ve looked into the supply chain to ensure that there are no significant constraints.

Future projects:

• Thinking about the spreading ripples of this evolving crisis, what resources, materials and stocks will run out over time and cause issues along the planned critical path for the planned project?
• This requires a thorough, rigorous risk assessment to be completed by the full project team to satisfy the funder that the borrower has considered everything, and to ensure that any risks associated with components of the project are being properly managed. For example, as much of the world appears to be shutting down, are the factories needed for the project operating – and if so, for how long? And how long will it take for a delivery backlog to unclog?
• Is the project team examining options to bulk-buy materials well ahead of time – and are their cashflows up to it in the event the contract doesn’t entitle payment for materials off site?

Potential impacts for funders:

• Increased costs for projects, unforeseen before the event
• Increased contingency expenditure
• Project is prolonged – which could affect deliverable sunset dates and interest cover provisions.

2) What trade components and resources are affected?

White Associates’ observations of construction components that may be affected include:

• Structural steel – A significant volume of steel components come from China. We understand production is once again gaining momentum. However, there may be potential supply issues until mid- to late this year.
• Lifts – some lifts are sourced from Italy and other parts of Europe, with delays associated with the current shutdown of the country borders and production.
• Reinforcing steel – is one component that no significant supply restraints are currently anticipated as most steel is refined at Glenbrook here in NZ, with only a handful of NZ reinforcing steel companies sourcing product from China. However, most reinforcing steel companies in New Zealand have Italian equipment. This could create problems if they don’t have enough spare parts to cover inevitable breakdowns, which could reduce capacity to operate.
• Glazing/ façade components – there is potential for these components, which are manufactured and shipped from China, to be delayed due to the initial closure of factories and likely border controls.
• Plumbing fittings/ electrical components – there may be shortages in supply of these items given the closure of factories and ports in China. In addition, European and American fittings will be affected.
• Kitchen components – many large-scale developments source joinery units from China. There may be a lag in being able to obtain these components in a reasonable timeframe until production catches up.
• Tiles – many wall and floor tiles are sourced from China and Italy. Supply constraints may be apparent as NZ stock runs out.
• Ripple factor: Human Resources – in the event of a COVID-19 case in an organisation associated with your development, the company could be shut down for two weeks (minimum) during the quarantine process. There will also be reduced productivity for a time until full production is reached.

There are a number of other components in construction that are 100% manufactured or assembled elsewhere in the world with components sourced in the countries which have been affected by COVID-19. As the situation develops, the risk of each of the components may increase or decrease, with the influencing factor being how long the COVID-19 crisis persists. Therefore, we recommend that:

• Additional due diligence – undertaken on existing projects and projects at the inception stage around the contractors, subcontractors and supplier procurement.
•  Risk management and up-front planning – essential to ensure continuity on projects and to manage risks associated with projects becoming prolonged.

Potential impacts for funders:

• Moving to alternative suppliers may lead to increased project costs, unforeseen before the event.
• Contingency expenditure could be required.
• Prolonged projects could affect deliverables, sunset dates and additional interest and funding costs.

3) How best to manage the risks?

Engagement with the contractor is key – to fully and comprehensively understand their procurement and supply chain, and any inherent risks within it. This is fundamental.

Then we recommend working proactively together to understand (and ensure) that:

• A full risk assessment has been made.
• Detailed contingency plans have been put in place.
• Any associated costs and time implications are known, quantified and accommodated within the project plan.

4) Will insurance policies respond to COVID-19 delays – and what to watch out for if sites are suspended?

A number of insurers have been quick to issue guidance to the market in light of the COVID-19 outbreak. One of them is AON, which has offered a number of useful pointers in its Know the Drill | March 2020, Coronavirus Virus/COVID-19 | Policy Wordings vs Schedules bulletin, which includes:

• Most insurance policies in the construction sector will not cover losses arising from COVID-19. Property policies require physical damage and liability policies require negligence. Focus should be on the impact of the situation on your policies.
• Does the contract works policy have a cessation clause in it? This means if there is no work onsite for a specific number of days (as per the policy) the contract works policy automatically lapses. This could unexpectedly leave the contact works uninsured.
• What are the lead times to order/source supplies? Do you need to be ordering more/holding stock yourselves?

What to watch out for if sites are suspended?

• In the event that a site is suspended it will be imperative to notify your broker or insurer to ensure continuity of your policy during the suspension period.

In any event, we recommend that:

• You talk with a specialist broker or advisor if you have any concerns about either of these points or any wider concerns.
• As AON says: You should always carefully check any policy documentation where your expectation is that you will have the benefit of the insurance coverage procured by a third party (be it a Principal or a Head Contractor). If in any doubt, seek advice from your insurance broker as the downside can be considerable.

Potential impact for funders:

–       A project could become uninsured if a site is shut down for a period of time.

5) Will contractors be entitled to extensions of time if COVID-19 delays a project?

They may be. Simpson Grierson, in its recently published guidance note, says that in some cases contractors may be entitled to extensions of time for such delays. We concur with these guidelines.

The type of contract in place is important. Clause 10.3.1(f) of the General Conditions of The most commonly used contract version, NZS3910:2013, provides that the Engineer shall grant an extension of time if the Contractor is fairly entitled to an extension by reason of “any circumstances not reasonably foreseeable by an experienced contractor at the time of tendering and not due to the fault of the Contractor”. This provision is replicated in NZS3916:2013.

‘Provided tendering took place prior to the outbreak of the virus, the spread of COVID-19 and its impact on production and supply chains could not have been reasonably foreseeable to a Contractor.’

We recommend that:

• The borrower and their representatives review their contracts to ascertain the contractor’s entitlement and establish potential time and cost impacts on their projects.

Potential impacts for funders:

• The role of the Engineer – and the term ‘fairly entitled’ – are in the spotlight here. The Engineer’s determination that the Contractor is (or is not) ‘fairly entitled’ to an extension will be key. Simpson Grierson’s view is that relevant factors to this determination could include ‘the Contractor’s ability to re-sequence works to avoid any critical delay and the particular circumstances of procurement of the delayed materials.’
• Even if entitled to an extension of time and relief from liquidated damages for late completion, the contractor may not be compensated for time-related construction costs.
• Prolonged projects could affect deliverables, sunset dates, facility expiry dates which could create additional interest and other time-related development costs.​

6) How is White Associates responding to the risks and reporting back?

At White Associates, we are working with our clients to undertake risk analysis on existing and new projects with regard to procurement. Our actions include:

Right now:

• On every project we are involved in we are asking:
  • Thorough questioning of the project team on their procurement and supply chain
  • For information on all/any risks
  • Management plans are in place to reduce the risks.
• We are also providing alternative supplier options where possible (such as an alternative, locally-based lifts supplier in the example given above).

Looking ahead:

• Full risk assessment – a major part of our precondition report information will include a section on supply chain risks associated with a project and COVID-19, with commentary and in-depth analysis.

Does this situation also present project opportunities?

Amid this global threat it may seem odd to consider it, but the current situation does provide opportunities in various sectors – such as retail and hospitality – to bring forward / undertake required maintenance or significant renovations or upgrades while visitor and occupancy levels are low.

Undertaking projects of this sort at this time:

• Would cause reduced disturbance to the public and to the organisation’s customer base
• Could be undertaken without a requirement for staging, which could also reduce time and cost.

Should you have any concerns about your existing project, or if you’d like to discuss the items noted in this bulletin further, please feel free to contact Darin Bayer to discuss.

dbayer@whiteassociates.co.nz

At White Associates we often write about the significant – yet all-too often under-rated – value of strong project teams (see Graham’s comments on the Mt Eden Correctional Facility opening on time and on budget here).

Few projects we have worked on have proven the immense value of team cohesion more than the recent and successful completion of the c.$100m Mt Eden Corrections Facility (MECF): on time, within budget, and relationships enhanced across the board.

What factors underpinned the project’s success?

1. ‘Well begun is half done’ is an oft-quoted phrase that in our world of cost management translates to starting a project with correct estimates and budget allocations for the scheme of the design. Although this is often challenging to achieve in the current market, on MECF everyone began from the same starting point, with the same goal and direction to make things happen. This included the design and consultant teams – including WSP, Beca, Honeywell, us, and the Corrections project team itself – and the contractor, Leighs Construction.

2. Very close communication. Occupying the same site office, the various teams were only separated by the foyer, which enabled anyone across the breadth of the team to walk into each other’s rooms to discuss and resolve any issues swiftly and efficiently. With clear communication, instruction became highly effective and decisions could be made and executed quickly. In turn, this enabled great:
3. Teamwork – across the whole team of consultants and the contractor. Brett Zeiler of White Associates says: “If every job could have this level of input from people on site, able to have quick meetings, everything would go well. No other job I have been involved with has had this level of representation on site permanently. What it did was to speed up the response times for the contractor when raising an RFI – and for the consultant closing it out. To me that is what made the project: it took the wind out of waiting times.”

Overcoming challenges

Of course, even when things are set up well, projects still generate challenges to be overcome. On MECF they included:

• Market challenges – a booming construction sector created challenges to secure the right people and resources for the work through the project’s life. This had three elements:

1. 1. Procurement challenges – White Associates supported a thorough process that involved detailed up-front due diligence. This ensured the right contractor for the job to start with: with the right people in the team, the project could get going well
   2. Keeping people on the project throughout its 2.5 year life – It was very hard to keep subcontractors on this multi-year project, particularly on margins agreed three years before. Clear costing and reporting helped to manage this challenge, and detailed workflow planning over the life of the project ensured continuity of workflow and programme, which helped the project to keep people on the team and retain knowledge on site throughout.
   3. Financial – costs in this environment are high. We therefore checked and compared all construction costs to market value to provide cost advice to the client and contractor, and ensured that work costs were applicable to the work that was carried out on site.

• Challenging ground conditions – These were managed initially through seeking out alternative, more efficient solutions. We generated estimates on the alternatives and ran a thorough optioneering process that helped to create the selection of a strong solution. And, because the team working environment was so strong, we could get instructions through quickly. This meant we could anticipate costs so the client had the opportunity to explore alternatives before costs were locked in.
• A confined site, in a live prison – This creates unexpected challenges because the on-site team can only work within specific hours, meaning that any programme slippage is hard to recover as opportunities for working at night or over the weekend for example did not exist. Meticulous planning ensured that everyone did what they said they would do and when, and kept the programme on track.

Adding value:

We are proud to have been active participants in this project, working to add value through:

• Providing cost advice for the designers to see if there was any room for value engineering. For example, on the yard extension works, when the designers came through with options we advised as to which would offer best value for money, which contributed to saving an estimated $3 million on yard A alone.
• Suggesting ideas on specs and products, for example non-pick sealants. We measured carefully to get the amounts right, working closely with the contractor to do site measurements together and prevent any over-claims.
• Providing cost estimates for variations to make the client aware of how much additional activities would cost.
• The façade – at the time of tender there was an alternative façade tender that would have saved money, but going with the originally specified product we felt was a good decision: going for long-term quality over short-term savings.

Corrections Minister Kelvin Davis MP took a trip to Mt Eden as the VIP guest for the opening ceremony to mark the completion of the Mt Eden Corrections Facility (MECF) Building C.

This c.$100 million project, which has been under construction for about two and a half years, has involved the construction of approximately 200 remand and at-risk cells by Leighs Construction, on time and within budget.

From working on the project inception in 2016, Konrad Trankels has managed the project from business case implementation through to selecting Leighs to build the project and now to final account. The MECF project was in response to the growing demand for beds and was part of the overall Prison Capacity Portfolio (PCP) also including Waikeria Prison currently under construction.

Graham White says the successful delivery of the project is an outstanding team achievement within an operational prison environment and in a tough construction market.

“It has just been an exceptional project. In this market everyone is under so much pressure; resourcing projects is very difficult, so this is a shining example of what can happen when the right team comes together in the right way.”

 

“The relationships that have developed between the client, consultants, us and the construction team on this project are exceptional. Because the site compound included the client team and all consultants, as well as contractors, it created a genuinely collegial way of doing things, enabling the face-to-face conversations that made things so much clearer – and decisions made quicker. Brilliantly led by Simon Thomson (Works Lead), and Patrick Dowe (Senior Project Manager), the right people have all been involved: all the companies have put great people here, and the gelling of the team in one place has had enormous benefits.”

 

“I’m pleased that we were able to play our part along the way in terms of cost estimates, advice and options that helped to save money and chart the way forwards. If you want an example of a job that went really well, look at this one.”

Making the move to Queenstown to head up our new operation is Elliot Smith. He’s been racking up a variety of experience and carving his way through a wide range of projects with enthusiasm and skill.

Elliot started studying to be a quantity surveyor in 2014 while working for an interior fitout subcontractor. When gaining his diploma of Quantity Surveying and Construction Management, and wanting a new challenge, he joined White Associates in 2016. Since then he has become a valued team member, working across pre- and post-contract disciplines on numerous projects, and latterly moving into estimating while sharing time between both teams.

In terms of his post-contract QS work, he has worked on Christchurch Men’s Prison Management Unit ($22m), Marist Primary School new classroom development ($2.5m), a $16.5m residential renovation, and AMP’s $75m Bayfair mall expansion. He has also worked on the $35m Rapid Deployment of Prison Enhancements project for the Department of Corrections across Canterbury, in QS and procurement roles.

His pre-contract estimating and cost planning work has included the $30m manufacturing laboratory for Douglas Pharmaceuticals, and the $15m Saints apartments residential development in Auckland. He has also taken on bank funding work, joining our teams working on the projects in Cromwell and Jack’s Point.

Saying that he is enormously excited about the challenge of starting work in Queenstown, he says that it is a huge motivation to work in a new place on new projects, and to see the value that he and the team can add.

“Adding value the whole way through projects is what I’m after, working as a team alongside the consultants and main contractor to collaborate and come to a position that best suits the client through value management. Being on the ground in Queenstown 24/7 means we will be able to do so much more, and be more effective, by being face to face with clients and consultants.

“Having the support of a 28-person team in Auckland to assist me – to provide input and advice, plus skills and resource – gives me confidence. I can call upon any of them to assist, as we have a great management team that is keen to help. It is exciting times for the firm, and for me personally.”

White Associates is delighted to announce the appointment of Justin Maritz to Director.

Now joining Graham White, Konrad Trankels and Darin Bayer as fellow directors of the business, Justin started at White Associates as a Senior Cost Planner in 2013, progressing to Principal in 2016 and then to Associate Director last year. With over 22 years’ experience working across South Africa, the UK and New Zealand, Justin works closely with all areas of the business, applying his significant expertise in cost planning, estimating, value management and construction cost management across the public and private sectors.

Konrad Trankels says that he and Justin have been working together strategically on a number of projects and clients since 2013. “The success of our relationship and the projects we have delivered has given great confidence to our clients and has made the transition seamless for Justin to become a director.

“The influence Justin has had on the culture of our working environments, and in driving company and project initiatives, has shown his natural ability as a leader for our staff and clients. It makes him an obvious choice as a business partner for us.”

Graham White, Director of White Associates, says, “To maintain our position as an industry leader, and for our business to grow, we need to have the most talented and dedicated people in leadership positions in order to provide our clients with the highest possible level of service. The appointment of Justin does just that.

“Succession planning has always been a focus for White Associates. We look to provide opportunity through identifying, growing and developing our team and I’m thrilled Justin has moved into a prominent leadership role through this promotion.”

Justin says, “I’m excited to take on this new role and responsibility, and to be in such great and thriving company. We have an amazing team and culture that we have all worked hard to develop and look forward to continue to develop and grow as a team.”

“We are working with wonderful clients and project teams and really thrive when we are trusted partners in the process. Now, more than ever, projects need well thought out and planned processes, along with a team that will deliver excellent service for clients.”

We are excited to report that the NZIQS Council has awarded White Associates founder and director Graham White life membership in recognition of his service to NZIQS and the industry.

NZIQS President Sam Lomax presented the award to Graham at the NZIQS Christmas function on Thursday 5th December in front of a packed audience.

Says Graham, now Life Member NZIQS, “This is a great honour, and a really nice surprise. It’s great to be recognised by your peers.”