The New Dunedin Hospital project recently concluded a market engagement process with the construction sector.  The process was led by the Ministry and facilitated by EY, with participation from the New Zealand Treasury’s Infrastructure Transactions Unit and Resource Coordination Partnership.

The purpose of the market engagement was ultimately to inform the Detailed Business Case for the Project, due for submission to Cabinet in Q1 2020.  Feedback received from New Zealand and international construction contractors, civil works contractors and subcontractors engaged throughout this process (‘Participants’) will influence how the New Dunedin Hospital will be delivered, including to help the Ministry determine its packaging and procurement strategy and other key project terms.

The Ministry’s market engagement process included:

Three market briefings (two in Dunedin, one in Sydney), attended by 75 people, representing 37 organisations

An extensive written Questionnaire which received 25 responses

One-to-one meetings in Auckland, Sydney, Christchurch and Dunedin with 20 contractors and subcontractors

Key themes

There is significant interest from a large number of construction contractors and subcontractors who are eager to be involved in delivering the project under the right conditions.  Many Participants emphasised that their interest is conditional on the approach the Ministry takes for project delivery, including the procurement approach, risk allocation and packaging.

Participants emphasised the importance of collaboration in tackling a project of this scale in Dunedin.  Constructive collaborative relationships would need to include the Ministry, the design team and contractors/subcontractors all working to share risk, address challenges as they arise and make decisions on a “best for project” basis. Precedents frequently cited by Participants include alliancing or collaborative working arrangement models.

Participants suggested that early engagement of the industry will be critical to delivering the project successfully by providing an opportunity for experienced contractors to inform the design, influence the buildability and maximise whole of life value.  Engaging with the market early was seen to give contractors and subcontractors sufficient lead time (and certainty) to plan for the project, including to ramp up resourcing and establish supply chains.

Availability of sufficient labour force was seen to be a surmountable challenge by most Participants.  While all Participants recognised that labour availability is a key constraint for the project, this can be (at least partly) addressed by providing contractors and subcontractors with long lead times to mobilise and recruit their workforce, utilising training opportunities within the project, and using prefabrication to spread the location of the workforce and minimise onsite labour requirements.

While there was limited consensus on where the key shortfalls within the labour market will be, most of the Participants acknowledged the local workforce would need to be supplemented by labour resources imported from outside Dunedin (from within New Zealand and/or internationally).

Generally, Participants were supportive of separating enabling works to de-risk the site ahead of the main construction works.  The Ministry’s decision to assume ground and site conditions risk through a separate enabling works contract was viewed positively by Participants as a key step towards a fairer risk allocation on the project.

While most Participants appreciate the logic of the Ministry’s earlier decision to separate the delivery of the Ambulatory Services Centre from the Acute Services Building, a number of Participants highlighted the potential benefits of combining the two buildings into a single package.  These advantages include programme efficiencies, improved resource coordination and continuity, economies of scale in labour and supply chain, and consistency in design.

Many Participants reflected positively on the approach the Ministry has taken to engage the market and reinforced the importance of ongoing communication with the industry as the Ministry moves forward into project delivery.  The themes of collaboration, positive industry development and improved engagement with the construction sector are seen as consistent with the principles of the new Construction Sector Accord and Government Procurement Rules.

Next steps

The market engagement process for the New Dunedin Hospital highlighted collaboration and early industry involvement as two core principles that Participants believed would enable the successful procurement and delivery of the project.  The Detailed Business Case will explore potential procurement pathways which could be adopted to give effect to these principles. Experienced representatives from the Ministry (and our advisors), Southern DHB and the Treasury will be involved in this process.

The market engagement process confirmed the Ministry’s view that the New Dunedin Hospital will have a significant impact not only on the Southern District health system, but to the entire New Zealand construction sector and the wider Dunedin economy.  The Detailed Business Case will also consider how the Ministry can deliver the broader economic and social outcomes from the Project to leave a strong positive legacy for the construction industry and the people of Dunedin.