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1
New Zealand Building Industry Federation
Response to the:
MBIE – Residential Construction Sector Market
Study: Options Paper
17 December, 2013
2
Introduction
The New Zealand Building Industry Federation (BIF) represents some 120 leading members of the
building industry supply chain embracing manufacturers, importers and marketers of products for sale
on the New Zealand market.
BIF exists to promote stable and sustainable growth in the building and construction industry;
encourage effective skills training and accreditation regimes for, and within, the industry; and promote
best practice standards throughout the sector. It is supportive of free market policies in the market
place and operates in an open commercial environment featuring intense competition between locally
manufactured and imported products.
The purpose of this paper is to present to MBIE views of BIF members on the Residential Construction
Sector Market Study: Options Paper. The approach taken by BIF has been to encourage members to
make individual submissions on the paper, provide no general guidance on positions that might be taken
by those members and reflect in this document the views of members as expressed to BIF. Many of our
members are in competitive market situations with other members and views may differ. Our intention
is to present these views for consideration as openly as possible.
We also wish to emphasise that the building and construction supply chain is under intense price
pressure, from home buyer to builder. This includes price pressure from builder to merchant and price
pressure on manufacturers. Many industry participants have for the past four years struggled to make a
return on investment in their businesses because of the downturn which accompanied the global
financial crisis.
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Issue: Complexity and Inaccessibility of Acceptable Solutions
1. Which of the four options (or combination of options) described above will be most effective at
improving access to Alternative Solutions for demonstrating code compliance? Why?
BIF supports all of the options proposed, but considers the most significant to be Option 2: Greater
specificity of what is needed for lower level product assurance.
Several factors are recognised as contributing to below-optimal performance in the residential sector
around product assurance. These include:
a lack of NZ based certification bodies;
insufficient transparency of the certification providers; and
a lack of clarity around the “rules” for lower risk product assurance.
There are two roles in this area. One is that undertaken by BRANZ, which embraces the provision of
testing, consulting, evaluation and appraisal. The other is that of Product Certification bodies accredited
by JASANZ and endorsed by MBIE, which certify products to CodeMark standard based on information
provided from the applicant.
BIF believes that support would be forthcoming for measures which:
Increase sector knowledge of product assurance processes through educational initiatives;
facilitate greater access to and awareness of certification providers, by promoting among other
things a stronger NZ domestic certification presence;
provide more clarity around how lower risk products can be more easily and cost effectively
evaluated; and
lead to increased adoption of alternative solutions, particularly by BCAs.
Currently a view exists that the predominant reliance on three offshore providers for domestic
certification is not conducive to greater uptake of the certification path, which is the option most easily
accepted in the current process by BCAs. Consistency across all BCAs of the adopted process is also
essential (as to which, see the submissions below in relation to centralised consenting). The success of a
product assurance framework will be fundamentally dictated by whether BCAs as a whole accept it (or
are required to accept it).
A number of our members are emphatic that the process for obtaining clear information from product
manufacturers in a consistent form must provide a clear distinction for products used in inherently
higher risk situations, such as those contributing to the structural and weather tightness performance of
the building. Failures of these products at a later stage will be more significant e.g. leaky housing
situation (weather tightness) or structural failure (engineered products).
It is also important that a laudable desire to encourage competition and innovation does not lead to a
reduction in performance standards of building products. Product assurance requirements may well act
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as a barrier to entry in some cases, but this is a logical and necessary defence against unproven and
possibly unsuitable imported products and systems penetrating the NZ market.
However, a product assurance scheme does not have to be complex, as evidenced by MBIE’s own work
on the Product Assurance Framework which matches the complexity of product assurance with the risk
of failure in use of a product. Thus, a doorknob is low risk, so manufacturers’ technical information will
suffice for approval. Exterior claddings are high risk, so an independent appraisal or CodeMark
certification is necessary. There is some feeling that the “risk pyramid” has yet to be widely understood
and adopted by industry and BCAs. This would be a useful focus for further industry education.
BIF is unaware of industry capture of the BRANZ Appraisal process. A number of members report that
performance assessment procedures for their products or systems followed by BRANZ have been robust
and challenging. The industry must have a neutral and credible test and appraisals body, not least
because of the growing number of little-known new products from overseas that are entering the
market. A BRANZ Appraisal is not mandatory for new products entering the market but both overseas
and local suppliers of materials and products regularly choose to obtain one for marketing and
consenting reasons.
BRANZ, MBIE and industry (including the Construction Industry Council and the Construction Strategy
Group) have produced the Industry Research Strategy (IRS) which is used to shape the BRANZ research
programme. New projects proposed for the programme are evaluated annually against the IRS by an
independent industry-derived Advisory Committee.
In summary, the sector would benefit from a more specific approach as to what is required in order to
satisfy BCAs and from a more transparent risk-based approach from BCAs toward the adoption of
alternative solutions, supported by enhancements to BRANZ’s role as an appraiser and tester of building
products.
2. What unintended consequence for the construction sector or the economy as a whole might each
of the four options entail?
We see no unintended consequences arising from the four options presented, subject to the comments
above.
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Issue: Specification by brand
3. Which of the two options described above will best promote competition in building products?
Why?
BIF does not favour either option.
This issue, and the options proposed in response to it, are based on the assumption that a wide range of
building products are directly substitutable for one another. This is not necessarily the case, other than
for a fairly limited range of simple and commoditised products. And even in those cases, the
specification of a product by brand is not based solely on the quality and performance of the product. It
may also take into account after-sales service, client demands and the reputation and substance of the
manufacturer/supplier. Global rules prohibiting “no substitutes” specification or requiring specification
by performance only do not acknowledge these realities.
In particular, consideration must be given in the product specification/selection process to the support
and backup by the product/system supplier, with preference to proven products/ systems from well-
established suppliers. There are numerous examples of product failure closely followed by company
failure e.g. the Nautilus Tower, Orewa, where a particular cladding product was specified but a cheaper
alternative was used and the importer and distributor then went into liquidation. Also French-supplied
corrugated roof sheathing was used in a number of houses around New Zealand, and a similar situation
to that at Orewa arose, with defects discovered and subsequent liquidation of the supplier.
Where specification by performance is appropriate and realistically possible, it tends to happen already.
For example, the steel business is heavily commodity (unbranded) product oriented and while there is
support for marketing and branding as a fundamental part of good business practice, lack of brand
specification in the steel sector is not viewed as impeding efficiency. There is some agreement that a
“no substitutes” clause would be unnecessarily restrictive, but the opinion is widespread that moving to
a “no brand” performance-based regime will not bring significant change to the steel supply sector. It is
widely considered that a change of this kind would need to be preceded by significant overhaul of the
current product assurance and testing regimes. However, structural products introduced into NZ
manufactured from steel of unknown origin can pose considerable risk to product compliance with the
Building Code. This highlights that even heavily commoditised products are not necessarily directly
substitutable in all cases. Substitution must still be managed carefully to ensure that a true “like-for-
like” is obtained.
More broadly, BIF believes that the well-established process/procedure of the qualified LBP designer
designing/specifying products on a performance basis to meet Building Act/Code Compliance should
remain in place. Specifying by brand can ensure controlled quality installation. Many manufacturers’
brands also require “approved sub-contractors” to install them. Substitution may also affect the
availability of product warranties. LBP designers understand and include these considerations in their
choice between brand and generic specification.
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Independent building product analysts have a strong view that allowance of specification by brand is
necessary so that the required physical or chemical properties of a building are achieved, for example,
using plasterboard interior linings to provide bracing resistance against wind and earthquake.
Substitution of one brand for another, possible under generic specifications, will not give assurance of
equal performance.
Any proposal for less-controlled substitution also risks confusing the legal responsibilities for making the
decision to substitute. A designer taking responsibility for the building he or she has designed should be
free to specify those products the designer believes should be used. By suggesting that a person other
than the LBP designer, for example the builder, can make substitution decisions based on performance
undermines the clarity of responsibility for design and specification. Where does the responsibility (and
liability) then sit? At worst, any substitution needs to be clearly documented and signed off by the party
willing to take responsibility for that decision.
Hence, the preferred option is to leave it to the designer to specify by “brand’ or generically, according
to their view of what is appropriate in the circumstances. If substitution is a possibility at a later point in
construction, it is appropriate that this should require the parties to revert to the designer for approval
(and potentially also to the BCA).
4. Which of the two options described above will carry the least compliance costs for industry
participants? Why?
The status quo is preferable. This leaves it to the designer to make specific or generic product choices as
appropriate, and as currently occurs. The LBP designer is making product performance/ specification
decisions all day long, and understands the consent/code compliance regime better than anyone else in
the process.
5. What unintended consequence for the construction sector or the economy as a whole might result
from each of the two options?
If a restriction on “no substitutes” clauses is to be introduced, it should be limited to critical elements
only, such as structural and weather tightness, and only if responsibility for the decision is clearly
allocated and documented.
Stating performance criteria only (no brand specification allowed) assumes that the builder is
competent to make decisions on product selection and performance, often requiring technical and
engineering experience which he (or she) may not have. This leaves the consumer exposed as
warranties will be void with wrong product selection. It may also create additional uncertainty in the
consenting process, if BCAs ultimately disagree with the product choices made.
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Issue: risk aversion
6. Will the recognition of manufacturer warranties in liability and consenting (as described above)
mitigate against BCAs being overly conservative? Why?
Manufacturer warranties exist already with reputable companies, and are taken into account in
specification decisions by designers. A significant majority align with builders’ liability under the
Building Code. The conservative behaviour at BCA level is a natural response to leaky homes, the
liability they hold as a result of the consent and compliance process, and the position of insurance
companies in regard to this liability. The ability of companies to easily liquidate and disappear will
remain, leaving the consumer without comeback, regardless of warranties given. So BCAs will continue
to be conservative, particularly in the higher risk areas of structural and weather tightness.
There can be little doubt, however, that risk aversion is having an impact on the willingness of industry
to introduce new technologies, products and systems and there is, therefore, much support for the
continuing work of the Law Commission to make adjustments to the laws governing liability. It would be
unrealistic to expect manufacturers alone to cover the full consequential costs of replacing the product
and, if such a requirement were imposed, it is likely that prices would rise. This will be exacerbated if
legal changes mean that other responsible parties are exempted from liability if a manufacturer’s
warranty applies.
BIF is also concerned at the apparent view in the options paper that the risk to manufacturers of product
failure is quantifiable. This is not the case. If manufacturers are to be liable for the full cost of
reinstating defective buildings, then their liability in this regard varies significantly from building to
building and over time. It is not realistically quantifiable.
Against this background, the recommendation that BCAs and others be encouraged to utilise
manufacturers’ warranties and so open up the sector to new products and technologies has some
support in principle. But there is concern that, if there are no changes around liability, manufacturers
will perceive their risk exposure as greatly increased and factor in price premiums accordingly. Material
supply is only one part of the construction process – the role of installers and other sector participants
needs to be considered in this context. Under the joint and several liability position it is not uncommon
for a manufacturer to be left, usually with the ratepayer, to fund remedial work caused by poor design
and various sub-trade workmanship issues because of existing insolvency law and the absence of
compulsory workmanship insurance for all on site.
A further significant issue in respect of recognition of manufacturers’ warranties in liability and
consenting is posed by the question: how do you deal with importers of products made in China who set
up a new company every year and close the old one?
7. What unintended consequences might result for the construction sector or the economy as a
whole from this option?
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A significant increase in manufacturer liability as a result of mandatory warranty terms could lead to a
rise in building product prices as manufacturers and suppliers factor in actual or perceived increased
liability.
It must also be remembered that a warranty is only as good as the substance of the
manufacturer/supplier giving it. If the manufacturer is not based in New Zealand or chooses to exit the
NZ market, the sector including builders, designers and consumers, could be left with a major issue.
Further, an acceptance of substituted products as suggested under the previous issue is seen as of
concern if warranties are given greater significance. Where warranties are important, specification by
brand is inevitable. Otherwise, system warranties could be void in many cases and BCAs could be held
liable, leaving the consumer completely without recourse.
Blind acceptance of substituted products without an appropriate level of verification which might fail
and create further huge costs on consumers is of concern. System warranties could be void in many
cases if a product comprising part of the system is substituted.
9
Issue: Acceptable Solutions
8. Could greater government funding in relation to Acceptable Solutions promote competition from
innovative systems? Please provide details.
It could shift current industry self-funding away from finding alternative solutions, into de-facto private
R&D, paid out of the public purse.
Inefficient and inconsistent consenting behaviour can be addressed through the proposal for National
Online Consenting rather than by expanding the scope of Acceptable Solutions. This would in turn give
larger builders the confidence to develop and promote trans-regional building systems and solutions.
Much needed economies of scale should also be an outcome of this initiative, along with a reduction in
direct costs of compliance and time delays.
Limited availability of Acceptable Solutions often occurs because it is not possible to find “a cook book
solution” for every building issue or assembly. More use of Alternative Solutions would help but this
prospect is clouded by the liability position of BCAs.
It is also valid that lengthy product assessment processes can occur because there are often not quick
and simple tests for products put forward for assessment. For example, accelerated weathering of
paints or plastics takes a minimum of six months, and a 12 month test is more reliable. All building
products that have an NZBC performance requirement also need an assessment of durability.
9. Would this represent an efficient use of public money? Please provide reasons.
No. A better option is to government fund a central scientific research organisation, like CSIRO in
Australia, as a Building Science Group, charged with advancing building science generally and supporting
the industry in finding economic, alternative building solutions – an extension of BRANZ would achieve
this. Some of these alternative solutions may in time become Acceptable Solutions, but direct
development of new products or systems as Acceptable Solutions is not an appropriate use of public
funds.
10. To what extent should Acceptable Solutions be used as a path to greater innovation, vis-à-vis
Alternative Solutions?
The option is clearly available now for products/systems to be developed to comply as an Acceptable
Solution. Additionally, the focus must be on streamlining product assurance processes to give BCAs
more confidence in decisions around Code compliance. Members note the reference to “National Multi-
use Approvals” - Multiproof - and many would support greater application of this in residential
construction, particularly as it may drive consolidation of a fragmented industry.
10
Issue: Inefficiencies in the Consenting Process
11. To what extent will greater use of risk-based consenting enable efficiency gains to be made within
the residential construction sector? Please provide reasoning.
For low risk buildings
Construction timelines will be reduced with subsequent time savings.
Consent costs will be reduced accordingly.
A NZ-wide consistent clearly-defined centralised consent application and processing system for all BCAs
will reduce the consent cost.
There is support among our members for the adoption of risk based consenting outlined in the Building
Amendment Act of 2012. A risk based approach may balance efficiency against complexity and perhaps
free up BCA resources to focus on more complex buildings.
12. What negative effects might arise as a result of any increased use of risk-based consenting?
Any risk-based consenting and building control process is dependent to a greater or lesser extent on the
quality assurance processes of those involved in construction. Given the proliferation of failures and
liquidations in the NZ finance and building industry sector (Star Plus Homes), the tendency may be to
reduce cost wherever possible.
11
Issue: Reducing information asymmetries
13 - 16. Which of the options to improve the transparency of strategic conduct, such as rebates, will
be most effective? Why?
This is a difficult area for BIF to address. It goes directly to the pricing behaviour of its members, many
of whom are in competition with each other. BIF therefore expresses no opinion on this question, and
has advised its members to make their own, independent submissions on this topic.
Beyond this, BIF’s only comment is that it supports the observation at several points of the options
paper that many of the rebates, incentives and other strategic behaviours discussed are potentially
features of strong competitive behaviour, and are not necessarily anti-competitive in intention or effect.
As the options paper recognises, this should be taken into account in any policy response, such that a
response does not inhibit proper competition.
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Issue: promoting best practice
17. How effective do you think government procurement could be in promotion best practice in
construction contracts and tendering? How could the work around best practice procurement best be
disseminated to the sector?
Government procurement has often in the past gravitated to the lowest price offered, with disastrous
results. The surge in leaky school buildings is often cited in the industry as an example of how lowest-
price based tendering can be counter-productive. An emphasis on whole of life quality criteria in
government procurement would assist considerably in lifting building standards. While the projected
all-of-government purchasing dollar value for construction related materials going forward is on the
surface quite large, delivery quantities on an individual project basis will be significantly fragmented and
incur differential costs to service.
We suggest that the question for government is: what is the best point of negotiation? Is it the
manufacturer, the major building contractor or the merchant? Our view is that the major building
contractor is the most likely and the merchant the most unlikely. A challenge is to ensure that the
benefits of volume purchase are not offset by disruptions to the normal distribution chain, such as have
been experienced in the Christchurch rebuild in respect of the “HUBS” concept.
It is our view that special care needs to be taken to ensure that arrangements are not put in place that
distort the market, for example by addressing the “boom” demand period but causing an oversupply
after the boom. Prevalence of “boom or bust” cycles in the industry in recent decades has been
identified as probably the major factor in reducing industry skills availability at professional, technical
and workplace levels in boom periods such as New Zealand is entering with attendant performance
difficulties. BIF members would regard the use of government procurement to selectively induce new
players into the market for “the boom” as potentially likely to create over-capacity in the “bust” or more
normal demand period.
Promoting best practice can best be achieved, we believe, through partnering. Pulling procurement out
as a standalone skill set can be damaging to this process in that it promotes a one dimensional solution
when the construction process is multi-dimensional. Procurement needs to be seen as a subset of the
entire process; careful note taken of where it fits in the construction process and how other
construction factors may be affected by changes to procurement processes; and potential benefits and
losses appraised accordingly.
If Government intends to procure large quantities of products from overseas (P 41) they must be sure
that any such products comply with the Building Code and will perform satisfactorily under New Zealand
conditions. There are numerous examples of products with an excellent long term performance record
in Europe, for example, which have failed under NZ conditions.
The question is asked how effective government procurement could be in promoting best practice in
construction contracts and tendering. The Government has significant resources to run very structured
and lengthy procurement processes. It should consider developing and sharing its procurement
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documentation and practices with the private sector free of charge. There should be a set of free
standard procurement documentation available to the private sector to improve processes and
consistency.
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Issue: Anti-dumping duties and tariffs
18 - 21. Do you agree with the assessment that import tariffs are likely to have a minimal impact on
construction costs, especially given that most materials are phasing to duty-free through Free Trade
Agreements? Or would provision for applicable tariff duties be suspended for the time being under
the system of tariff concessions help lower costs in specific instances?
The anti-dumping process has been developed over many years of international free trade negotiation.
Assessment by government of anti-dumping claims by industry is stringent. Protective measures are
taken only after intensive review of the impact of relevant imports on local industry. The incidence of
successful anti-dumping applications is low. Many of our members would not see any material benefit
accruing either nationally, regionally or within any industrial sector by reducing the level of anti-
dumping protection. On the contrary, liberalising the anti-dumping regime to support the construction
sector may well have negative and difficult to forecast implications (such as price increases) for other
sectors of the economy.
BIF members generally do not believe that import tariffs represent a factor in increasing costs or
promoting inefficiency in the residential sector. They are at historically low levels and programmed to
decrease further as part of international commitments. Conversely, NZ manufacturers are required to
maintain export pricing structures so that they comply with all anti-dumping regulations.
15
Issue: Innovation
22. What, in your opinion, should be the government’s role in promoting innovation in the residential
construction sector?
There is support for the use of building levies for a Building Science Group along the lines of a BRANZ or
CSIRO model, providing a scientific independent approach to innovation within the building industry. In
this context the work of the Productivity Partnership between the public sector and industry on
innovation is regarded highly by sector participants.
Overall, there is support for the opinion that the fragmented structure of the residential construction
sector gives rise to below optimal productivity/high costs and does not support active promotion of
innovative new products or building systems. Resources should therefore, in our view, be channelled to
those mechanisms which will encourage industry co-operation to foster innovation and productivity,
such as the Productivity Partnership and BRANZ. Such co-operation will bring economies of scale,
greater standardisation and enhance supply chain practices, management and trade skills. BIF is
supportive of existing work streams focused on productivity and skill development (to underpin the use
of technical solutions like BIM) and the accompanying suite of proposed options: Productivity
Partnership, educational programmes, social housing and LBP skill development requirements.
According to Lincoln University research demonstration projects are a good catalyst for builder
innovation (and probably for their customers as well). A question arises in respect of the “Innovation
Network” option in that it seems much like product appraisals wearing another hat, without the rigour
of the existing processes, checks and balances that underpin appraisals. Where would liability lie in this
assistance to innovation? It may be useful for MBIE researchers to review the Lincoln University
publication on how builders innovate – largely by demonstration.
There is a view that the Government needs to weigh up its role as innovator against its responsibilities
with taxpayers’ funds. A number of members believe the Government should focus on being a facilitator
of targeted industry education and should look at using some government building projects to
demonstrate innovation. Social Housing proof of concept and a targeted education programme are
strongly favoured. Meetings or forums between builders and manufacturers hosted by the Government
are also favoured.
23. Which of the above options would be most helpful in terms of showcasing what can be done and
helping the sector to adopt new technologies? Why?
BIF favours option 3: criteria to promote innovation through BRANZ use of Building Research Levy.
But while criteria or objectives may be set for promotion of innovation through such agencies, there can
be no guarantee industry will take them up. The bottom line for industry is the commercial soundness of
the proposed innovation and this will always be the ultimate determinant of acceptance. BRANZ’s past
experiences can confirm this.
16
A requirement in respect of the use of social housing as “proof of concept” for both builders and house
buyers is that standard details, prefabrication and affordability are demonstrated without sacrificing
quality or liveability.
24. To what extent is there a risk of adverse consequences if any of the above options are
implemented? Please provide reasoning.
There are several potential adverse consequences which need to be guarded against particularly in
relation to Option 2: how does one decide what innovation to pursue, and where will the drive to share
technology and resources come from amongst competing companies?
Research both by Ian Page at BRANZ and Professor John Tookey at AUT has shown that there are many
opportunities to reduce the cost of “the house”, without the need to develop yet more methods of
construction. Both Tookey and John Fairweather at Lincoln University have found that the industry is
generally risk averse and builders appear to be happy with the status quo. However, it may be asked
whether customers know enough to demand change.
17
Issue: Construction Management
25. Which of the above options will best promote more efficient construction management practices?
Why?
Good construction management practices demand good construction managers. As the Option Paper
notes, few are graduating. This will continue to be the case until the construction industry is seen to
offer a good career path, good rewards and freedom from frequently “intense” boom-bust cycles.
Government procurement of housing and non-residential buildings can help through the publishing of
forward work programmes (ie The Pipeline) which ramp up when the industry enters a down cycle.
26. Which of the above options will carry the least compliance costs for the sector? Please provide
reasoning.
BIF supports Option 2: Licensed Builder Practitioner Requirements, because it is in place now, is
working, is clearly understood, accepted, and can be built on. The builder now clearly understands the
extent of his responsibilities and makes decisions in the best interests of his client. The prime issue is not
compliance cost but what makes for best value for NZ Inc.!
27. To what extent is there a risk of adverse consequences if any of the above options are
implemented? Please provide reasoning.
As confirmed in various Government publications, many businesses in the construction sector involve
self-employed operations. Many of these businesses sub-contract to larger builders, or are sole traders.
This gives rise to what many would consider a glaring gap in relation to ultimate protection, and
confidence, for consumers. The ease of liquidation for small corporates, and easily ring-fenced
protection of income and assets for individuals through trusts and other similar mechanisms, continues
to render the risk of financial and emotional cost of required remedial work extremely high for home
owners, despite the LBP scheme.
A form of compulsory workmanship insurance cover to fund defects claims should be introduced for
designers, critical sub-trades and all who work on a residence. The LDP regime should include this, along
with Approved Insurance Providers (AIPs). Compulsory insurance is “the norm” in Australian states.
Bruce Kohn
Bruce Kohn Chief Executive
Building Industry Federation
10 Treasure Grove, Hataitai
Wellington 6021 Tel: (04) 386-2793; email: [email protected]