The building and construction sector is characterised by a large number of small firms and a small number of very large firms. Small and medium firms (SMEs) are particularly prevalent in the residential sector and the more specialised trades while very large firms are more likely to work in the infrastructure and commercial parts of the sector.
The nature of firms in the industry means that they are especially vulnerable to economic cycles. This has manifested as large boom periods where there is more demand for work than can be met, followed by bust periods where there is not enough work to go around. These volatile cycles present a barrier to sustained skill development as people with skills are often lost to other industries or overseas in bust periods and new people then need to be rapidly trained in boom periods. In order to cope with this type of pressure, the sector has to be flexible and able to respond to short-term changes, ideally, without having a significant negative impact on either productivity or employment.
The nature of the industry also makes management and supervisory skills critically important. These skills are important to ensure that work is done safely and to a high standard and that resources are used as effectively and efficiently as possible. However, due to the prevalence of very small businesses and the regular changes to economic conditions, management skills are lacking in the sector.
Addressing these firm-related issues will help increase productivity in the sector.
Firm responses to the boom-bust nature of the sector
Firms in the building and construction sector need to be able to respond to boom and bust cycles.
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RESPONSES |
KEY GROUPS INVOLVED |
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Ensuring workers have transferable skills. This means that workers could work in different roles as needed at different times in the economic cycle |
ITOs, tertiary providers, Industry Associations and Institutes |
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Training business owners in financial management to ensure capital is retained in business during boom times |
Industry associations and institutes |
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Work with government and other large purchasers to develop better understanding of the purchasing pipeline and where greater certainty can be provided to the construction industry about the scale, type and phasing of government and other large construction projects |
MBIE, Treasury, Constructions Clients Group, Procurement Workstream |
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Work with government to ensure that its approach to procuring construction projects uses:
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Treasury, industry associations and institutes, Construction Clients Group, Procurement Workstream |
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Make use of relevant skilled workers from industries which might be counter-cyclical |
Industry associations and institutes, MBIE |
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Create policy and funding settings to allow learners to flexibly flow between different parts of the provider network during boom and bust periods |
TEC, MoE, ITOs, tertiary providers |
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Encourage building owners to use the low demand periods in the cycle to carry out maintenance and where required seismic strengthening, taking advantage of capacity in the industry, lower rates and lower prices |
NZ Property Council, Construction Clients Group, body corporates, Insurance Council, Bankers Association, local and central government |
Raising management skill levels in the sector
A skill that has been in huge demand in the building and construction sector and in the economy more widely in recent years is management capability. People with management responsibility need to have the skills to effectively manage for businesses to operate effectively and respond to changes and fluctuations. There has also been a shift in thinking away from seeing management as an innate ability or something that can be learned by observation to a skill which can be studied and which needs to be practised. The sector needs to ensure that the benefits of management training are understood by firms and workers, and that training is available that effectively meets the needs of current and future managers. Specific management skills that are in short supply include: business management, supervisory, project management and HR skills. These are especially important to ensure that workers are productive and used efficiently.
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RESPONSES |
KEY GROUPS INVOLVED |
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Implement training in succession planning, particularly for SMEs, to ensure that businesses are long-lasting |
ITOs, tertiary providers, industry associations and institutes |
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Investigate the benefits and costs of introducing company licencing in the sector compared to voluntary schemes and qual-marks |
MBIE, industry associations and institutes |
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Investigate whether legislation governing the LBP scheme should be amended to enable skills maintenance requirements to include management training |
MBIE, industry associations and institutes |
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Recruit suitable candidates for the skilled migrant category to work in the sector in management and professional roles and facilitate their visa process and settlement |
MBIE, Construction Clients Group, industry associations and institutes |
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Adopt professional procurement processes including the development of NZ building and construction procurement qualifications |
MBIE, Treasury, Construction Clients Group, ITOs, tertiary providers |
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Encourage the adoption of management quality standards to encourage best management practice and to embed training into the normal business planning processes |
MBIE, Treasury, Construction Clients Group |
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Identify the different management skills required by firms in various parts of the sector and of different sizes |
Industry associations and institutes, ITOs, tertiary providers |
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Create best practice guides for business structures emphasising growth opportunities applicable to their current size |
MBIE, industry associations and institutes |
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Encourage management to pursue opportunities in process and productivity improvement |
Industry associations and institutes |
Focusing on SMEs in the sector
The majority of businesses in the building and construction sector are SMEs - either sole traders or owner-operators - with a small number of staff. SMEs face different issues than their larger counterparts and are often more vulnerable to changes including economic cycles. The age of business owners is also a concern, given the large share of SMEs in the sector. In many businesses, there are no clear successors to take over when the owner retires. This can lead to businesses not surviving when the owner retires, resulting in employment losses and reduced productivity in the sector as a whole.
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RESPONSES |
KEY GROUPS INVOLVED |
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Ensure owners and managers in SMEs have training in financial literacy including contract management and pricing of projects |
ITOs, tertiary providers, industry associations and institutes, Chambers of Commerce |
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Ensure there are best practice models for HR practice focusing on supervision, hiring the right people and ensuring the skills of both new and existing workers are utilised and developed |
MBIE, industry associations and institutes |
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Investigate ways to support SMEs to improve long term business sustainability |
Industry associations and institutes, MBIE |
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Work with major contractors and clients to use procurement processes, such as pre-qualification, to shape SMEs business processes (e.g., adoption of new technologies, recruitment and training practices, etc) to drive improved productivity and value for the client |
MBIE, Construction Clients Group, principal contractors |
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Work with government agencies and existing Group Employment and Training Schemes to increase the availability of trainees and workers available for construction firms, including SMEs, through new and expanded Group Employment and Training Schemes |
TEC, MoE, MBIE, industry associations and institutes |
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Provide case studies of how SMEs and larger firms can overcome issues of scale and lack of capital structure to collaborate |
Constructing Excellence, Productivity Partnership |