Tangible progress in investigating the issue of risk
2 min read
- Risk management
- New Zealand
10 October 2018
There’s been plenty of behind-the-scenes activity over the last few months as industry players working on the ITA investigate the thorny issue of risk allocation and management.
In every conversation about the building and construction industry, risk is the number one issue that surfaces most often. It affects all parts of the industry and seems to generate the greatest pain.
While conversations tend to centre around the pain stemming from risk, the ITA’s work needs to dig deep into the root causes of this pain. We need to look at what changes may be required at the system level to help alleviate the pain.
The journey so far
On our journey to date, we’ve been asking lots of questions to unpick the issue. The goal is to ultimately create practical frameworks, tools and approaches for anyone in the public or private sectors of the industry to manage risk.
There is no quick fix, but work is underway and we are keen to get your thoughts on this.
Here’s the story so far – in May this year we held an industry workshop with 30 people – contractors, owners, suppliers, designers and regulators – to examine the root causes of risk in the industry. This built on discussions held previously with ITA champions and leaders in 2017, including industry agencies, associations and boards across New Zealand.
Together, these sessions have helped to paint a picture of the issues associated with risk. Six ‘hypotheses’ around fair risk allocation and management have been articulated and are a basis for ongoing investigation:
- Hypothesis #1 – Design decisions are made without fully understanding downstream impacts, leading to exposure of risks to others further down the value chain.
- Hypothesis #2 – Contractors are being asked to price on incomplete design work in very short timeframes. They are locking themselves into unachievable pricing and timelines, exposing themselves and others to critical risks.
- Hypothesis #3 – The lack of understanding of the benefits of outcome-based contracting means there is greater focus on lowest cost/best price contracting and inappropriate risk sharing and management as a result.
- Hypothesis #4 – When clients and contractors don’t trust each other, they use contract terms which don’t manage risk as well as the terms that could be used if it were a high trust relationship.
- Hypothesis #5 – There have been changes to the way the industry works to the detriment of fair risk management and sharing.
- Hypothesis #6 – Inappropriate risk management and sharing is more prevalent when first-time clients or poorly equipped clients are involved.
Our next step is to test these hypotheses and we will discuss how to do this through conversations with a diverse range of people from across the sector.
We are about to initiate some work on hypothesis #5, comprising interviews with industry leaders who have long experience of the construction sector and a perspective of the way in which the industry has changed in relation to risk.
At the same time, we’ve been talking to researchers at the University of Auckland’s Te Pūnaha Matatini (TPM) Centre of Research Excellence about some joint research projects around risk. An initial project will focus on how to optimise the spread of risk in contracts across the different parties. A complementary project will look at characterising failure on building industry contracting networks, the cascading effect of failure, and industry resilience. This collaborative approach enables us to draw on the university’s expert research skills and tools which we believe will prove invaluable insight into the complex building and construction system.
In short, it feels like we are making some headway with this key issue for our industry and the number one topic in so many conversations. We will keep you posted on how this work is progressing and you may find we call on you for assistance along the way. We are also keen to hear about work others are doing on this topic.
Karla Falloon, Programme Leader, ITA
Send us your feedback
We are very keen to hear your thoughts on all of this. Please send your feedback via this short three-question survey.